HANG SENG BANK LTD v. LEUNG SHUI CHUNG AND ANOTHER

HCMP 1784/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1784 OF 2008

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J U D G M E N T

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Introduction

1.  The 1st Defendant, Madam Leung Shui Chung, has had judgment entered against her under Order 88, RHC by Master Ko in the amount of $17,534,785.54.  This is her appeal from that Order.

2.  What has happened is that Madam Leung has mortgaged a property which she owns to the Plaintiff bank and also provided it with an all moneys guarantee to secure the indebtedness of the 2nd Defendant, which is a company owned by a friend of her’s Mr Chui Chi Ming and his wife Madam Chum Kam Ming.  The 2nd Defendant has defaulted on its indebtedness to the Plaintiff which has obtained judgment against it in the identical amount entered against Madam Leung by Master Ko.

3.  She seeks to avoid liability under the mortgage and on her personal covenants on the basis that when she executed the mortgage she had been subject to undue influence by Mr Chui who had also misrepresented to her the extent of her liability.

Factual Background

4.  In all such matters, the facts of the case are critical in determining whether a defendant can successfully avoid liability for undue influence.  On this occasion, the bank has obtained summary judgment and the question therefore is whether, on the affirmation evidence, Madam Leung has been able to show that there are triable issues which can and should only be determined at a conventional trial in which the witnesses accounts can be tested by cross-examination.

5.  The material facts, which I take largely from Madam Leung’s affirmations, can be recited reasonably briefly.  The mortgaged property is at 14, Tai Wong Street East, Wanchai.  It comprises a small shop which had once belonged to Madam Leung’s mother who had purchased it in 1974 and was passed to her or her mother’s death.  She has owned the property since 21 March 2003.  As long ago as 1986, when Madam Leung’s mother was still alive and owned the property, it had been let to Mr Chui and his then business partner.  Over time Madam Leung and her mother became friendly with Mr Chui going well beyond a relationship of landlord and tenant.  Mr Chui’s tenancy of the shop was renewed over the years.  From 1989, he had become the sole tenant.  Since 1998, the tenancy has been an oral one (the previous one’s had been in writing), reflecting the fact that Madam Leung and Mr Chui had become friends and that she trusted him.

6.  In early 2002 the rent on the premises rent into arrears.  Mr Chui explained that he was experiencing cash-flow problems with his business which he was expanding on the Mainland.  In fact at that time he asked her whether she might be willing to provide her home at Hang Fa Chuen as security against which he might raise money for his business.  She declined his request.

7.  In October 2002, following her mother’s death, as a result of which she had become the owner of the property, Mr Chui asked Madam Leung again whether she would allow him to use the property on this occasion instead of her home as security against which he could borrow money for his business.  He told that he wanted to enter into a 4-year loan agreement secured on the property which he was confident he could pay the instalments on.  At that stage, she was able to put him off by saying that probate on her mother’s estate had not been completed and that as the property was so small not much money could be raised against it.

8.  Nevertheless, in late March 2003 probate was completed and Mr Chui then repeated his request that she allow him to use the property as security for a business loan.

9.  On this occasion she says that she agreed.  The way she puts it on affirmation is like this:

“Considering the fact that Mr. Chui’s close relationship with me in the past years.  I decided to let him to [sic] make use of the Mortgaged Property to raise a loan from the bank for a shot-term as agreed.” [para.14 of her 1st affirmation — A/56]

About two days later he telephoned her to say that his loan had been approved.  She says that she did not ask him about the amount of the loan because she did not think that he would be able to borrow very much on the property.

10.  The matter then proceeded with the Plaintiff instructing the firm of Kong and Tong to arrange for the execution of the security by Madam Leung.  Kong and Tong already had possession of the title deeds to the property because they had previously acted for Madam Leung in respect of her late mother’s estate.  A Mr Ho from this firm of solicitors telephoned her on about 1 April 2003 to tell her that he had received instructions from the Plaintiff to prepare an “all moneys First Legal Charge of the mortgaged property to secure an amount of facility to the extent of $1,860,000 granted by the bank” (See her first affirmation, para.18, A/57-58).

11.  Given the importance of the circumstances surrounding the execution of the mortgage by her, it is necessary to recite here how she has described this in her first affirmation.  Firstly, she says that she is a person of fairly basic education, having been educated up to Form 2 at her secondary school, after which she went out to work.  She was about 54 years old when she executed the security.  As to her friendship with Mr Chui, she said that this developed over time and that she had attended his wedding to Madam Chum.  In about 1997 after Mr Chui and Madam Chum had returned from Canada, she had agreed to take care of their infant son which she did for about five years.  She was paid $5,000 a month for this service and later $3,000 a month when the child started kindergarten.  He would stay with her during the week and go to his parents at weekends.  Although she was on very good terms with Mr Chui and his wife, she says that she did not know much about his business affairs.  She was of course aware of the fact that he was having cash-flow difficulties shortly after he had gone into arrears for four months on the rent of the property which was $30,000 a month.

12.  With regard to the amount of the loan, she considered that Mr Chui would not be in a position to obtain a substantial one because she thought that the property itself was not very valuable, it having been purchased by her mother in 1974 for $430,000.  This having been said, she does say at para.18 of her first affirmation [A/58] that Mr Ho, the solicitor, informed her that the property would be mortgaged so that Mr Chui could obtain a loan facility of $1,860,000.  This was the first time that she had learnt of the amount of the loan.  As to the circumstances of her executing the mortgage she says this at para.18, A/58.

“During the telephone conversations with Mr. Ho, he reminded me that I should be cautious of the transaction.  He also reminded me that since his firm was acting for the bank in the proposed mortgage transaction, I had had the right to seek independent legal advice from a separate lawyer on the mortgage documents for the purpose of protecting my interests before the execution of the transaction.  I told Mr. Ho that I have known Mr. Chui for quite a long time and he is a trustworthy person.  I further assured Mr. Ho that this loan was only a short-term one to ease Mr. Chui’s cashflow problem which would be resolved in about 4 years’ time.  I also confirmed to Mr. Ho that I did not require any independent legal advice from a separate lawyer and instructed Mr. Ho to go ahead with the mortgage documents right away.  As I was told by Mr. Chui, the amount of loan was based on the security given to the bank.  Therefore, I verily believed that the valuation of the Mortgaged Property must be also within the region of about HK$1,860,000.00 and that my liabilities under the said First Legal Charge would only be the loan together with interest.”

13.  At paragraphs 19-20 [A/58-60], she concludes as to the circumstances of the execution of the mortgage.

“On about 3rd April, 2003, Mr. Chui and his wife Madam Chum and I attended the office of Messrs. Kong & Tang, solicitors for signing the First Legal Charge as well as some other related documents.  On that occasion, I was shown a letter of instruction dated 1st April 2003 (‘the 1st letter’) as well as the letter dated 2nd April 2003 (‘the 2nd letter’) both sent to Messrs. Kong & Tang, Solicitors by Hang Seng Bank for preparing the First Legal Charge.  The 2nd letter superseded the 1st letter due to the error of the Chargor’s name.  In both letters, it was expressly stated, inter alia ‘AMOUNT SECURED : the extent of the facility to be granted currently is $1,860,000’.  Apart from the First Legal Charge, I also signed some other documents, viz.:-

(i) Statement from Hang Seng Bank admitting awareness to seek other legal advice concerning my liabilities of the proposed legal document;

(ii)    A drawdown letter dated 3rd April 2003 from Messrs. Kong & Tang, solicitors to Hang Seng Bank bearing the specimen signatures of the Mortgagor and the Borrower;

(iii)   A Warning Notice dated 3rd April 2003 given to me about my rights and liabilities under the security documents before the transaction;

(iv)  A letter dated 3rd April 2003 in English with its translation in Chinese for confirming not to seek independent legal advice notwithstanding the offer made to me.

The said First Legal Charge and the above documents had been duly explained to me by Mr. Ho.  Following the execution of the mortgage documents, Hang Seng Bank granted a loan of HK$1,860,000 to Ming Fung Sanitary Wares & Building Materials Company Limited (the 2nd Defendant) upon receipt of the drawdown letter dated 3rd April 2003 from Messrs. Kong & Tang, Solicitors.  Accordingly, a cheque dated 7th April 2003 for HK$1,860,000 was drawn in favour of the 2nd Defendant by Messrs. Kong & Tang, Solicitors and acknowledged receipt of the same by Mr. Chui.  Mr. Chui had repeatedly assured me that this loan was a short-term one for dealing with his immediate cashflow problem.  He further said that no bank would grant him further facilities based on one Mortgaged Property.  Unless I had other assets to be charged, Mr. Chui said, the bank would not lend him further monies.  I believed that these all made sense.  As a result it never occurred to me that Mr. Chui would obtain further loans and facilities from the bank.  Therefore, it never occurred to me that the bank would subsequently further advance additional sums of money or credit facilities to Mr. Chui based on the same Mortgaged Property.

After the loan of HK$1,860,000 had been granted to the 2nd Defendant, I did not receive any letter from Hang Seng Bank about any delinquent repayments by Mr. Chui nor had I heard any default payment from the bank.  As I did not hear any problem about the repayments from either Mr. Chui or Hang Seng Bank, I believed that Mr. Chui did continue his monthly installments repayments to the bank.  In fact, during this period, I continued my regular meetings with Mr Chui which he kept on assuring me that he had been honouring his repayment obligations of the monthly installment payments.”

14.  This is a case were the 2nd Defendant’s indebtedness grew and Madam Leung’s liability to the Plaintiff back was to increase from $1,860,000 at the time that she executed the documents to over $17,500,000 by the time that these proceedings were instituted by the Plaintiff for which it has now obtained summary judgment against her from the Master.  This was to come about as a result of 5 facility letters signed by Madam Leung and by Mr Chui on behalf of the 2nd Defendant under which the Plaintiff increased the 2nd Defendant’s credit with it.

15.  As will become apparent in a moment, Mr Man on behalf of the Plaintiff submits that these facility letters and Madam Leung’s signature of them are of no consequence so far as Madam Leung’s liability is concerned because under the terms of the mortgage the Plaintiff had the right to increase the 2nd Defendant’s credit without informing Madam Leung, for which she would still be liable.  Nevertheless, in order to record her complete narrative this is what she has said about these letters and the circumstances of her now very substantial liabilities:

“(1) Paragraph 4 of Mr. Ip’s Affirmation refers a facility letter dated 4th January 2008 (‘the 5th Facility Letter’), ie. ‘Jan08 Facility Letter’ as well as four other facility letters, viz.:

(i)    Facility Letter dated 13^th November 2006 (‘the 1st Facility Letter’);

(ii)  Facility Letter dated 24^th January 2007 (‘the 2nd Facility Letter’);

(iii)    Facility Letter dated 14^th May 2007 (‘the 3rd Facility Letter’); and

(iv)    Facility Letter dated 15^th June 2007 (‘the 4th Facility Letter’).

In that paragraph, the plaintiff alleged that by the 5 facility letters aforesaid all from the Plaintiff to the 2nd Defendant and all countersigned by the 1st and 2nd Defendants by way of acceptance of the terms stated therein and the Standard Terms and Conditions of Banking Facilities, the Plaintiff offered general banking facilities to the 2nd Defendant.  Such allegations are not true.

(2)   So far as those 5 facility letters aforesaid are concerned, I wish to say that I have no knowledge of the contents thereof at all.  As to my execution of the 1st Facility Letter, what happened was that on a date in about mid-November 2006, Mr. Chui telephoned me and told me that he wanted to apply for extending his repayment term from the original 4 years.  I asked Mr. Chui why and he said that the original term required him to repay a monthly sum of over HK$40,000.  After making due repayments of over 3 years, he now had some difficulties of continuing this monthly repayments.  I then asked him how long did he apply to extend his repayment period.  Mr. Chui said it was beyond his control.  It was entirely up to Hang Seng Bank to decide for how long the repayment term could be extended.

(3)   As I believed that by then Mr. Chui must have repaid a very substantial sum of the loan, I did not mind letting him apply for an extension of the repayment period.  I also believed that Hang Seng Bank would not easily extend a too lengthy repayment period for Mr. Chui’s loan.  Based on this, Mr. Chui drove his car to my residence after having closed his shop in the night time in about mid November 2006.  When he arrived in the vicinity of Hang Fa Chuen, he telephoned me to come down to meet him.  I went down and got inside his car alone.  Mr. Chui thereafter showed me a page bearing my name in Chinese and cross mark which he said was an application letter for extension of his repayment period and asked me to sign on the space as directed by him.  He further represented to me that as a matter of formalities I was also required to sign in order to show that I endorse his application.  He further told me that the letter was given to him by Hang Seng Bank so as to enable him to bring it down to my home for my signature.

(4)   I am now advised my legal representatives that the 1st Facility Letter in fact comprises 6 pages which contain a substantial amount of banking facilities granted in commercial nature to the 2nd Defendant by the Plaintiff and secured by the Mortgaged Property and 3 other properties and an unlimited joint and several guarantee executed by Mr. Chui and Madam Chum as well as some other security documents.  But I recalled clearly that Mr. Chui only gave me one page to sign.  As I could not read English, I only trusted what was represented to me by Mr. Chui, that is the said single page which was in fact an application letter to the bank.  I did not know about the contents of the letter at all nor had Mr. Chui explained to me of what was it about.  When I asked Mr. Chui about how the situation of the loan was, he simply answered me that the loan repayments were not fully settled yet and needed further time to make the repayments.  In regard to the 1st Facility Letter, I was not asked by the Plaintiff to go to its office for signing the same nor had I been explained the contents thereof at all.  If I had been aware of the contents of the 1st Facility Letter which granted Mr. Chui’s company a facility of HK$19,700,000.00, I would definitely not have affixed my signature on that page.  It is therefore obvious that I was misled by Mr. Chui into signing the 1st Facility Letter which I did not understand at all and had no way of verifying the represented meaning of it.

(5)   As to the remaining 4 facility letters, ie. The 2nd Facility Letter, the 3rd Facility Letter, the 4th Facility Letter and the 5th Facility Letter (hereinafter collectively referred to as ‘the Remaining Facility Letters’), I wish to say that I have no knowledge of the contents thereof at all.  I emphasize that the circumstances for me to sign the Remaining Facility Letters were similar to that of my signing the 1st Facility.  On each occasion, he would telephone me in advance saying that the bank would require me to sign the letters for the purpose of altering the loan repayment terms.  Mr. Chui told me specifically that these Remaining Facility Letters were supplemental documents for his application.  I was misled into believing that he encountered difficulties in his application for extending his repayment terms from the bank.

(6)   On each occasion, Mr. Chui told me that the bank would give him the letter and then he would bring it down to my home for my signature.  Same arrangement as before, on each occasion, he added that I did not need to go to the bank but simply waited for his call when the letter was available.  I could not recall how may letters from Hang Seng Bank that I had signed but whatever I signed, it must be the case that Mr. Chui would drive his car to Hang Fa Chuen and asked me to come down to his car.  Mr. Chui would then show me the page bearing my name in Chinese and cross mark and asked me to sign on the space as directed by him in his car.  I signed the letters because I trusted him and believed what he said was true.  Obviously, I was not asked by the Plaintiff to go to its office for signing the Remaining Facility Letters nor had I been explained the contents thereof.  It is obvious that I was induced to sign the Remaining Facility Letters under the false representation by Mr. Chui that those documents were for helping him to apply to extend the repayment term from the bank.

(7)   Based on the arrangements aforesaid, I verily believe that I was misled by the Mr. Chui when I signed the 1st Facility Letter and the Remaining Facility Letters.  If the 1st Facility Letter and the Remaining Facility Letters were the security documents to secure the banking facilities granted to the 2nd Defendant, the Plaintiff has failed to discharge its duty to offer me an opportunity seek independent legal advice regarding the 1st Facility Leter and the Remaining Facility Letters before my signing the same.  The Plaintiff should also bear responsibilities in this regard as it was obvious that it allowed Mr. Chui to bring these letters to me to sign upon the false representations of Mr. Chui.  In effect, the Plaintiff had either deliberately or recklessly concealed the information of the facilities granted to the 2nd Defendant from me.  In relation to the 1st Facility Letter and the Remaining Facility Letters, I wish to say further that the Plaintiff has never contacted me about the loan facilities which the Plaintiff would grant to the 2nd Defendant.  I did not have any knowledge at all that the 1st Facility Letter and the Remaining Facility Letters were in fact the security documents signed by me for the purpose of granting facilities to the 2nd Defendant by the Plaintiff.

(8)   The loan of HK$16,890,076.45 was first brought to my attention when I received a letter of demand dated 15^th May 2008 from the Plaintiff.  There is now produced and shown to me a copy of the letter and marked as exhibit ‘LSC-3’.  When I received this letter, I was shocked to note that the amount due to the Plaintiff was so substantial.  I immediately telephoned Mr. Chui and asked him what happened to the loan due to the Plaintiff.  He simply told me to ignore it but I refused.  I further asked him to explain to me the amount as demanded by the Plaintiff.  As Mr. Chui was unable to give me a satisfactory answer, I asked him to take me to Hang Seng Bank to go into the depth of the matter of the loan granted to the 2nd Defendant.” [See para.21, A/61-65]

16.  And so, basing himself on this version of events, Mr Kenneth Chan, who appears for Madam Leung, submits that it simply would not be right to drive her from the judgment seat merely on paper in circumstances such as these.  There are, he suggests, ample grounds for saying that she had been subject to both undue influence and misrepresentation by Mr Chui which ought to infect the Plaintiff bank’s position and which will need careful examination at the trial of this originating summons before a decision can be arrived that as to whether she should to be liable for this amount.

17.  Insofar as the signing of the facility letters are concerned, Mr Chui has filed an affirmation on behalf of Madam Leung [A/88-94] to say that he had been told by a bank official that in order to increase the amount of credit that the bank was willing to extend to the 2nd Defendant, facility letters would need to be signed by him and his wife on behalf of the 2nd Defendant and by Madam Leung.  He confirms Madam Leung’s account that he only gave her the signature page of the facility letter so that she could sign but that he did not explain to her the effect of these letters which he was, in any event, himself not clear about.

18.  Mr Ho, the solicitor has also filed an affirmation [A/71-78] to confirm that he explained all the documentation to Madam Leung and that he had advised her to seek independent legal advice before signing but that she told him that she did not wish to do so and she has signed a notice to this effect.

19.  This is a case therefore where the bank’s position is unassailable on the documents which could not be clearer.  For the avoidance of doubt, I will identify them here indicating their purport.  Firstly, Madam Leung signed the bank’s notice [B/100] which explained her obligations and liabilities under the mortgage which Mr Ho had also explained to her.  Clauses 1, 2 and 3 tell the mortgagor (Madam Leung) what her obligations are and what the bank is able to do:

“1. By executing the Mortgage, each Mortgagor may become liable to the Lender instead of or as well as the Borrower.

2.  The Mortgage contains an ‘all-monies’ clause.  Each Mortgagor will be liable for all the actual and contingent liabilities of the Borrower under the terms of the Mortgage, whether now or in future, as specified in Clause 2 of the Mortgage.

3.  The Lender may from time to time, without consent or knowledge of the Mortgagor:-

(i)  renew, vary or modify the terms or conditions relating to any facilities granted or to be granted by the Lender to the Borrower; or

(ii) increase or decease the banking facilities or grant any further credit or other facilities to the Borrower or;

(iii)    grant any extension of time for payment or other indulgence to the Borrower; or

(iv)    discharge or release or vary the securities given by any other person or party in favour of the Lender to secure the indebtedness of the Borrower to the Lender;

any no such act on the part of the Lender shall in any way discharge or diminish the validity of the Mortgage or affect the liabilities of the Mortgagor under the Mortgage.”

20.  Secondly, there is the draw down letter dated 3 April 2003 [B/115-116] which informs the bank of the execution of the mortgage and that Madam Leung has been told that she could seek independent legal advice.

21.  Thirdly, the warning notice [B/113-114] also dated 3 April 2003.  Given its importance, I propose to set out what it says.  It could not be in plainer terms.  Madam Leung has signed it:

“1. The Mortgagor have applied to the Lender for banking facilities/mortgage loan to an extent of HK$1,860,000.00 to be granted to the Borrower on the security of a mortgage to be taken out on the Property.

2.  Before you sign the mortgage and the other security documents which you have to sign if you go on with the transaction you should instruct a solicitor to protect your interests and to ensure that your rights and liabilities under the security documents are properly protected.

3.  YOU ARE RECOMMENDED TO INSTRUCT YOUR OWN SOLICITOR who will be able at every stage of the transaction to protect your interest and to give you independent legal advice.

4.  If you do not instruct your own solicitor, you will be required to attend the office of the solicitors acting for the lender solely to sign and execute the security documents and the solicitors will only be instructed by the Lender to explain and to witness your signing and execution of the security documents.  They do not act as your solicitor and will not be giving you any legal advice regarding the security documents.

5.  YOU ARE STRONGLY ADVISED to obtain the financial information of the Borrower and engage your own financial adviser to give you advice on such financial information before signing and executing the security documents.

6.  Your liability under the Mortgage will be unlimited if you decide to go on with the transaction and sign and execute the Mortgage.

7.  You also have the choice not to proceed with the transaction in connection with the banking facilities/mortgage loan to be granted to the Borrower.

8.  Please think carefully before deciding whether to proceed with the transaction.  You are free to choose whichever option you prefer.

I acknowledge receipt of a copy of this warning and fully understand the contents thereof.”

22.  Finally, is a bi-lingual letter, also dated 3 April 2003, signed by Madam Leung (and on behalf of the 2nd Defendant by Mr Chui) indicating that she has been advised of her right to seek independent legal advice but has decided not to do so.  It says this [B/111]:

“We, the undersigned, hereby expressly acknowledge and confirm that the First Legal Charge/Mortgage in respect of the above property prepared/to be prepared by your firm (as Solicitors acting for the Lender) is to secure ‘all moneys’ in respect of general banking facilities granted/to be granted by the Lender to the Borrower and that you have invited us to seek independent legal advice of our liabilities thereunder so far as our interests are concerned on this transaction as well as on this First Legal Charge/Mortgage.  Notwithstanding that every chance having been offered to us to do so, we do not wish to seek independent legal advice and have decided to execute the said First Legal Charge/Mortgage and/or the relevant document(s) in your firm at our own risks and responsibilities.”

23.  In the face of such documentation which had been explained to her by Mr Ho, it is submitted by Mr Man that there is no prospect of defences such as undue influence or misrepresentation by Mr Chui having any bearing on the bank’s position vis-à-vis Madam Leung.  In such circumstances, the Master was right to have entered judgment against her.

The Law

24.  Mr Man submits that there can be no suggestion that the bank should be liable for any wrong committed by Mr Chui in having misled Madam Leung.  Mr Chui was in no sense acting as the bank’s agent in procuring Madam Leung’s execution of the mortgage.  Professor Enonchong in his textbook Duress, Undue Influence and Unconscionable Dealing expresses the point in this way:

“Where there was no arrangement between the creditor [P] and the wrongdoer [Mr Chui] and the documents were not sent to the wrongdoer but were signed by the surely at the offices of the creditor or his solicitor, the courts have refused to hold that the wrongdoer acted as the creditor’s agent.” [para.22-009]

25.  Mr Man correctly submits that the bank had clearly entrusted the obtaining of Madam Leung’s consent to the mortgage to the solicitors.  Mr Chui was out of the picture so far as that was concerned and Mr Ho had clearly told her, as the documents show, that she should seek independent legal advice.

26.  Whilst not accepting that Mr Chui had been guilty of any improper conduct, Mr Man submits that even if this was the case there is no evidence that the bank had any notice of it nor can it be said that the bank had any constructive notice by being “put on inquiry”.  For this, he relies on the judgment of Lord Scott of Foscote, NPJ in Bank of China v Li Sau Ying [2004] 7 HKCFAR 579.  Lord Scott referred to the speech of Lord Nicholls in RBS v Etridge (No.2) [2002] 2 AC 773 in which he had said that it was not only in cases involving husband and wife that a bank would be put on enquiry where a wife was becoming a surety for her husband but also in every case in which the relationship between the mortgagor and the principal debtor was non-commercial although this had to be looked at with “the eyes of the bank”.  Lord Scott held that it was not necessary for a proposed mortgagee (the bank in this case) to make enquires about the relationship between the principal debtor and the proposed mortgagor (Madam Leung) before deciding on the steps it should take to satisfy itself that the surety understood the transaction that she was entering into.  He went on to describe such enquiries in most cases as “an unwarrantable impertinence”.

27.  At paras.36-38 of his judgment in Li Sau Ying ibid, Lord Scott adopted what Lord Nicholls had said in Etridge (No.2) ibid at para.54 of his speech that:

“The furthest a bank can be expected to go is to take reasonable steps to satisfy itself that the [complainant] has had brought him to her, in a meaningful way, the practical implications of the proposed transaction.  This does not wholly eliminate the risk of undue influence or misrepresentation.  But it does mean that a wife enters into a transaction with her eyes open so far as the basic elements of the transaction are concerned.”

28.  Although on the face of it, Madam Leung appears to have been fully appraised of her obligations and liabilities on the mortgage and has frankly said that Mr Ho had told her to be cautious about the transaction and advised her to get independent advice about it, Mr Kenneth Chan in arguing the case with his customary thoroughness has submitted that the bank ought to have imputed to it knowledge that Madam Leung trusted Mr Chui very much and that she had been assured by him that this was to be only a short-term loan which he would have no difficulty in dealing with in terms of paying the instalments.  In the event, a relatively modest $1,860,000 liability has grown, through further advances as evidenced in the five facility letters, to $17,500,000 with the result that Madam Leung is now at risk of not any losing the shop premises but perhaps her own home, which the bank could charge and sell under her personal covenants to satisfy its judgment.

29.  Mr Chan has criticised the failure of the bank to inform Madam Leung of the principal debtor’s (D2) and Mr Chui’s financial position.  For this, he has relied on the judgment of Gibbs CJ in Commercial Bank of Australia v Amadio [1982-1983] 151 CLR 447.  At 457 the Chief Justice observed that:

“It would be commercially unreal to suggest that a bank has a duty to reveal to a surety all the facts within its knowledge which relate to the transactions are out of the ordinary.  The obligation is to reveal anything in the transaction between the banker and the customer which has the effect that the position of the customer is different from that which the surety would naturally expect, particularly if it affects the nature or degree of the surety’s responsibility. (emphasis added)”

Mr Man counters by submitting that Gibbs CJ at pages 455 and 456 of his judgment had said that generally a bank would not be expected to disclose to the surety matters that affected the credit of its customer and, in the present case, it is not and cannot be suggested that the bank had in anyway colluded with Mr Chui to suppress his financial difficulties when Madam Leung executed the mortgage.

30.  As to the facility letters where the evidence is that these were not explained to Madam Leung and indeed she only saw the signature page and not the whole document, Mr Chan has submitted that it would be quite wrong to hold Madam Leung to these obligations.  Whilst this is an attractive way of putting the case as a matter of first impression, the fact is that it is the mortgage itself and not the letters of facility that govern Madam Leung’s liability to the bank and it is this which, in my judgment, makes any submission based on the circumstances of the signature of these letters by Madam Leung untenable.  In any event, she would be bound by her own signature of them but this would merely be an additional, if unnecessary, means of fixing her with liability for the 2nd Defendant’s debt to the bank.

31.  Ultimately, whilst this may seem a hard case, there is no doubt that Madam Leung knew precisely what she was letting herself in for as between herself and the bank.  Her obligation was fully explained to her — she was told to be cautious about the transaction and advised to get independent legal advice which she declined to do.  Everything that could be expected of the bank was put in place so that she could make a fully informed and independent decision as to whether to take on this serious obligation.  She cannot now be seen to resile from it.

32.  Whilst the law readily recognises the pressures that can be brought to bear on sureties particularly those affected by ties of family, friendship or other close relationships, it is necessary to understand that provided the appropriate safeguards have been put in place as best as can be devised by the bank, as they were in this case, a surety must be bound by his or her obligations.  In this matter, those safeguards were adopted.  There has been full and sufficient explanation, every opportunity for independent advice was given and Madam Leung must now be held to her execution of this mortgage.  The Master was right to have entered judgment.  This appeal must therefore be dismissed with costs.