BANK OF CHINA (HONG KONG) LIMITED, THE YIEN YIEH COMMERCIAL BANK LIMITED
HUNG OI WAH, GOLDMATE DIAMOND LIMITED, GOLDMATE LIMITED, WHALE WIDE LIMITED
Ms Eva Sit, instructed by Messrs Tsang, Chan & Wong
THE YIEN YIEH COMMERCIAL BANK LTD v. HUNG OI WAH AND OTHERS
CACV 260/2009
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REASONS FOR JUDGMENT
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Hon Le Pichon JA:
1. This was an appeal by the first defendant (“Madam Hung”) from a judgment dated 30 October 2009 of Saunders J made in proceedings by the plaintiff (“the bank”) to recover possession of the property known as Flat B, 8th Floor, Hing Yip King’s Building together with carport number 14, Prince Edward Road West (collectively “the property”). The judge found for the bank and ordered the first defendant to deliver vacant possession of the property. On 21 December 2009, the judge granted a stay of execution of the judgment until further order. At the conclusion of the hearing the appeal was dismissed for reasons to be handed down which we now do. The bank’s application for the stay to be lifted, not being opposed, was granted.
Background
2. Madam Hung who was widowed in 1988 is the sole owner of the property. At the request of her eldest daughter Karin and then son-in-law Philip, on 20 November 1995 when Madam Hung was 61 years of age, she executed an all monies mortgage over the property in favour of the bank (“the mortgage”) to secure general banking facilities to be granted to the second defendant by the bank. During her husband’s lifetime, between 1971 and 1982, she had executed mortgages over the property on 6 occasions in favour of the Yien Yieh Commercial Bank Ltd. which has since been taken over by the bank.
3. The second defendant was a company that was owned and controlled by Karin and Philip. Madam Hung was an authorised signatory of the second defendant at the time of the mortgage but not a shareholder or director.
4. There were further advances made by the bank in effect to Karin and Philip, secured against other properties owned by various companies (“the corporate defendants”) which they controlled. Defaults in repayment occurred in 1999. The bank commenced the present proceedings on 17 November 1999 against Madam Hung and the corporate defendants.
5. Karin and Philip were married in 1988. Philip’s family had been in the diamond trading business. After Philip had cut off his relationship with his own family in 1995 for reasons which need not be elaborated here, according to Madam Hung’s second affirmation affirmed on 5 August 2000 (at §9), Karin and Philip informed Madam Hung that Philip wished to set up his own company for the diamond business. They “repeatedly urged” Madam Hung to help them by putting the propertyup to the plaintiff as an assurance for obtaining some credit facility from the plaintiff, assuring Madam Hung that they would take up all responsibility for payment so that there would not be any risk to her and that the execution of any document would be just a formality.
6. The bank’s case was summarised by the judge in §8 of his judgment:
“8. The case for the Bank was straightforward. Madam Hung had, the Bank says, attended at the Bank’s solicitors, as she had on six previous occasions, where the documentation had been explained to her by a conveyancing clerk. Following that explanation Madam Hung had signed the necessary documents, her signature being witnessed by a solicitor. There was nothing in the circumstances, the Bank says, to put it on any inquiry, and that the explanation by the conveyancing clerk was all that was required to ensure that Madam Hung understood the nature and effect of the transactions into which she was entering.”
7. Madam Hung’s defence to the bank’s claim was that it had been procured by the undue influence of Karin and Philip.
8. The judge correctly held (and it is not challenged) that the burden was on Madam Hung to establish that (1) the mortgage was affected by undue influence exercised by Karin and Philip on her; (2) the bank was put on inquiry; and (3) the bank had not taken reasonable steps to satisfy itself that Madam Hung understood the nature and effect of the all monies mortgage.
9. After a trial lasting four days, the judge made the following findings:
(1) Undue influence had not been made out on the evidence. While Madam Hung trusted Karin, she also reposed trust and confidence in her third and fourth daughters who lived at home with her. Ascendancy over Madam Hung had not been established. Further, the fact that there was a relationship of trust was, of itself, insufficient to make out a case of undue influence. It was incumbent on Madam Hung to show that the transaction was one that called for an explanation. The judge found that the transaction was not one that called for an explanation, it being perfectly normal for a parent to confer a benefit on his or her child and the bank is not under a duty to ensure whether parents are wise in seeking to assist their children, citing Royal Bank of Scotland v Etridge [2002] 2 AC 773 at §21 and Portman Building Society v Dunsangh [2002] 2 All ER (Comm) 221.
(2) There were no circumstances that might cause the bank to question the transaction: while the property was Madam Hung’s home at the time of the mortgage, it was not a case of Madam Hung mortgaging her only significant asset. She owned other substantial assets by way of cash and stocks.
(3) The bank’s solicitors had discharged their duty by sufficiently explaining the mortgage to Madam Hung in a language and a dialect that she understood and that she “well knew the consequences and effect of the mortgage”, having signed six mortgages over the property between 1971 and 1982.
This appeal
10. At the outset of the hearing, Mr Lam who appeared for Madam Hung invited the court’s attention to two “brownie” points that he wished to make orally to add to his written submissions. As those were his only oral submissions (Mr Lam having chosen the somewhat extraordinary course of not making any other oral submissions in support of his appeal), those points will be dealt with first. I surmise from the course taken that the two “brownie” points were considered to be of sufficient merit to be worthy of oral submissions, presumably, to drive home what must have been considered to be an already‘strong’ appeal on paper.
11. The first point related to §49 of the judgment where the judge, while recognising that he had discretion in the matter considered that, in the present case, it should be exercised in accordance with the contractual arrangement. Accordingly, he made an order nisi that costs should be “on an indemnity basis”. Mr Lam referred to the concluding words of clause 1 of the mortgage which referred to “a solicitor and own client basis”, commenting that the judge “could not even get this right”.
12. Clause 1 is a long clause. The first part sets out (in subclauses (a), (b) and (c)) the specific obligations of the mortgagor and the principal. Subclause (b) specifically provides for the payment of “all costs charges and expenses howsoever incurred by the Mortgagee …in relation to this Mortgage on a full indemnity basis”. The phrase on which Mr Lam relies occurs in the second part of clause 1 which was a general wrap-up provision.
13. In those circumstances, while there might be scope for argument as to which of the costs provision should prevail, it cannot be said that there was no basis at all to support the judge’s view of the contractual arrangement. In any event, if Madam Hung were unhappy with the costs order nisi, the proper course would have been for an application to be made for a variation and if the application were unsuccessful, the matter could then be dealt with as part of the substantive appeal. As that procedure has not been followed, it is now too late. In any event, the appeal is not advanced by complaining about that now.
14. The second point relates to §26 of the judgment where the judge found it “simply incredible” that Madam Hung asserted that she did not know she was a one third owner of the property at 34/F Imperial Court which was the subject matter of the third mortgage. Karin and Philip owned the remaining two thirds. The judge considered the assertion incredible and particularly so since the estate agent had brought proceedings for unpaid commission in relation to that transaction and subsequently obtained a charging order over the property which has been duly registered.
15. Mr Lam drew attention to the fact that the recital to the charging order absolute showed that Madam Hung was “absent” when the order was made in October 2000, and the land search made for the purposes of the proceedings in 2009 showed that the charging order was still registered. Mr Lam submitted that given the insignificant amount involved, Madam Hung would have taken steps to vacate the charging order had she known about it and that, accordingly, the judge had drawn the wrong inference in his judgment and should have believed Madam Hung, intimating that he was wrong in disbelieving Madam Hung generally.
16. There is no evidence to support Mr Lam’s assertion that had Madam Hung known about the charging order she would have done something about it. It is no more than speculation on Mr Lam’s part. I do not consider that the inference suggested is a necessary inference. It would have been different had steps being taken to execute the charge. After all, as Madam Hung had no intention of selling her home, the registration of the charge had no impact on the status quo and would not necessarily have galvanised her into action as distinct from any execution of the charge (which did not happen).
17. It will have become apparent that Mr Lam has been singularly unsuccessful as regards his “brownie” points both of which I consider to be wholly devoid of merit.
18. I now turn to consider Mr Lam’s written submissions. The appeal is essentially one that challenges the judge’s findings of fact. An issue of law is also raised concerning the manner in which certain questions had been put to Madam Hung and Karin in cross-examination and by the judge. The relief sought is that the judgment be reversed or, alternatively, a retrial on all issues before a different judge be ordered.
19. A party seeking to challenge findings of primary fact faces a high hurdle. The parameters are well-established. But before proceeding to consider Mr Lam’s written submissions, it would be appropriate to set out the judge’s view of the state and quality of Madam Hung’s evidence after the 4-day trial:
“14. Madam Hung had made three witness statements and three affirmations in the course of the proceedings. When called to give evidence she disowned entirely the three witness statements, and the material parts of the three affirmations made by her, as either wrong or untrue. Her oral evidence was entirely inconsistent with the statements that she had made in both the witness statements and the affirmations.”
20. An example was Madam Hung’s assertion, made in §10 of her second affirmation, in §24(e) of her original defence and her amended defence (the latter filed only two weeks before the trial and affirmed as true in the statement of truth dated 17 August 2009 required under the new rules) that Mr Lo the conveyancing clerk attending her on the mortgage had explained the schedules of the mortgage to her. Yet, in oral evidence, she denied that any explanation had been given. The judge identified further examples of such inconsistencies in his judgment.
21. Beyond that, there were other matters that clearly troubled the judge. There was no explanation, let alone any credible explanation, of Madam Hung’s ability to have a distinct recollection of the circumstances concerning the execution of the mortgage which took place in 1995 (such as whether Mr Lo had given any explanation) and her total inability to recall events that took place in the 1990s. There was also the late assertion (only raised a decade after the commencement of the proceedings) of her difficulty in understanding Cantonese, alleging that the Meixian Hakka dialect was the only dialect with which she was conversant, by way of a pretext for having to “clarify” what she had said in her earlier affirmations and witness statement. Yet, as the judge recorded in §33 of his judgment, in evidence Madam Hung accepted that she did understand the explanation of the affirmations and witness statements given to her by her former solicitors’ clerk in Cantonese.
22. In those circumstances, hardly surprisingly and as he was perfectly entitled to do, the judge came to the conclusion that Madam Hung’s evidence was unreliable and no real weight could be placed on her assertions, whether in her witness statements or her affirmations or in the witness box. In §23 of his judgment he said:
“23. In the whole of the circumstances I am unable to place any weight on Madam Hung’s assertions either that the security documents were not explained to her and she did not understand them, or that she was subjected to undue influence by Karin and Philip in deciding to sign the security documents.”
The finding is re-iterated in §46 of the judgment.
23. Mr Lam criticised the judge for ignoring evidence of actual undue influence. He referred to the following passage from Karin’s witness statement of 15 May 2008 which states:
“85. Philip and I wrongfully assured my mother that the execution of the 1st Mortgage was just a formality, and that there would be no risk of any kind whatsoever to either her or the 1st Mortgaged Property.”
He also relied on the assurance mentioned in §9 of Madam Hung’s second affirmation, summarised in the last sentence of §5 of this judgment. It was said that the fact that such assurances had been uttered was never challenged. As I understand it, it was said that because those utterances had been made, they constituted evidence of actual undue influence which the judge was not entitled to ignore. The submissions betray a misapprehension of what Madam Hung had to establish and prove in order to succeed on the defence of undue influence.
24. I have already referred to the judge’s view of Madam Hung’s evidence. As to Karin’s veracity and reliability as a witness generally, it is clear that the judge was not impressed either. In both her witness statements Karin had confirmed the truth and accuracy of Madam Hung’s affirmations (subject to certain clarifications made in her supplemental witness statement). But when Karin gave oral evidence, she asserted for the first time that she had had no involvement at all in the preparation of Madam Hung’s affirmations and witness statements. The judge did not believe her. Karin’s evidence also contradicted that of Madam Hung given in cross-examination that all along it was Karin who had handled the affirmations and witness statements for Madam Hung.
25. Thus, Karin’s assertion to which Mr Lam apparently attached importance was like any other piece of evidence adduced at trial. It was a matter for the judge whether to accept it or to reject it. Undue influence is not established simply on the say-so of the wrongdoer. Even if the wrongdoer (in this instance Karin) had made a misrepresentation to Madam Hung, undue influence does not follow. It has to be evaluated together with all of the relevant evidence. In this regard, Madam Hung denied in evidence that this had ever been said to her. As Recorder Ma SC (as he then was) observed in Bank of China (Hong Kong) Ltd v Wong King Sing & Others [2002] 1 HKLRD 358 at 374F-G, the evidence of the complainant will often be of critical importance. The judge is tasked with arriving at conclusions of fact, based on the state of the evidence at the end of the trial. Importantly, he had to decide on the evidence whether it had any effect on Madam Hung. If, as the judge has found, Madam Hung understood and knew what she was doing by signing the mortgage and appreciated its consequences and effect, undue influence does not get off the ground.
26. It is for the judge to make findings of primary fact based on the evidence. An appellate court would defer to the judge’s assessment and evaluation of the veracity of a witness and the reliability of his evidence because an appellate court does not have the advantages of the trial judge which come from receiving the evidence at first hand. It would only intervene if the conclusion reached by the trial judge on the facts was plainly wrong, for example, by failing to observe inconsistencies or indisputable fact or material probabilities. No grounds that would warrant any interference by this court have been shown.
27. Without surmounting the first hurdle by upsetting the judge’s conclusion on undue influence, the appeal could not possibly succeed. In those circumstances, it is unnecessary to address the other matters raised in Mr Lam’s written submissions.
Costs
28. At the hearing, after dismissing the appeal, we heard counsel on costs which we then reserved. Ms Sit sought costs on an indemnity basis and Mr Lam submitted that it should only be on a solicitor and own client basis. In my view, costs should be on an indemnity basis and I would so order.
Hon Cheung JA:
29. I agree.
Hon A Cheung J:
30. I also agree.
| (Doreen Le Pichon) Justice of Appeal |
(Peter Cheung) Justice of Appeal |
(Andrew Cheung) Judge of the Court of First Instance |
Ms Eva Sit, instructed by Messrs Tsang, Chan & Wong, for the Plaintiff/Respondent
Mr Kenneth Lam, instructed by Messrs Anthony Siu & Co., for the 1st Defendant/Appellant
Citation
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Appeal history
THE YIEN YIEH COMMERCIAL BANK LTD v. HUNG OI WAH AND OTHERS
CA · 15 Mar 2011
This judgment