THE HONGKONG CHINESE BANK, LTD. v. ONLINK INVESTMENTS LTD. AND OTHERS

HCMP1448/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1448 OF 1998

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J U D G M E N T

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1. The plaintiff claimed against the defendants by Originating Summons for possession of Flat B on 28th Floor and Car Parking Space No.23 on Lower Ground Floor, Fu Kar Court, Fortress Garden, 32 Fortress Hill Road, Hong Kong under a mortgage dated 4 July 1997 ("the 1997 mortgage"). This is the trial against the 3rd defendant. There is also a monetary claim against her for a sum which is now over $14 million.

Background

2. The various defendants are companies and individuals related by family ties. The 2nd defendant, Madam Tai Ling Ling, is the daughter of the 3rd defendant, Madam Lee Lin Heung and Mr Tai Chuen Fong. She is the wife of the 6th defendant, Mr Warren Mann Kin Kwong. He is a shareholder in the 1st defendant which is the owner of a flat in Braemar Hill Mansions ("the BHM property") which he and the 2nd defendant occupied as their residence. One of the 2nd defendant's brothers, Tai Po Lun Jonathan, is a director of the 1st defendant. The 4th defendant, which is a limited company having common directors with the 1st defendant, is the registered owner of property in Technology Plaza, Nos.29-35 Sha Tsui Road, Tsuen Wan, New Territories ("the TP property"). The 5th defendant is a limited company of which the 2nd and 6th defendants are the shareholders and directors.

3. By an assignment dated 2 March 1993 ("the Assignment") the 2nd and 3rd defendants became the owners, as joint tenants, of the suit property. It was on the same date mortgaged to the Hong Kong and Shanghai Banking Corporation (by an "all monies" legal charge) to secure a home loan of $1,995,000. This mortgage ("the 1993 mortgage") was later discharged on 31 March 1995 and mortgaged again to the plaintiff, along with the BHM and the TP properties, to secure banking facilities for one Woonli Ltd which was connected with the 4th defendant by a common director. Then on 4 April 1997, that mortgage ("the 1995 mortgage") was discharged and the suit property was mortgaged again to the plaintiff along with the BHM and TP properties to secure banking facilities for the 5th defendant. The 5th defendant failed to pay its debts to the plaintiff which has obtained monetary judgments against it and the other defendants.

4. The 3rd defendant comes into this matter because of a general power of attorney ("the POA"), dated 24 August 1992, purportedly granted by her in favour of the 2nd defendant. The latter signed both the provisional and formal sale and purchase agreements for the purchase of the suit property as attorney as well as on her own behalf, but a signature in the name of the 3rd defendant appears on the Assignment and the 1993 mortgage. All the documents are ex facie validly executed.

5. The 3rd defendant's defence in brief is that in 1993, while she and her husband were living and doing business in England, she told the 2nd defendant to find a property for her to buy in Hong Kong as a retirement home. The 2nd defendant found the suit property for her. She put up the money to buy it and gave that money to the 2nd and 6th defendants. On 2 March 1993 at the 2nd defendant's home, in the presence of one Simon Chan, a solicitor, she signed three or four documents, in English, which she did not understand and which were not interpreted to her, but she believed that they were for the purchase of the property by herself alone, and nothing else. She knew nothing about any mortgage until the proceedings were commenced and she never intended to mortgage the suit property to anyone.

Evidence

6. Evidence for the plaintiff comes from Mr Simon Chan, the solicitor who prepared the POA and the 1993 mortgage and assignment, and Mr Philip Fu, the solicitor who prepared the 1997 mortgage.

7. Mr Simon Chan said that he came to know the 6th defendant, Mr Warren Mann, in 1992. He was instructed by Mr Mann in the purchase of the BHM property by the 1st defendant, whose shareholders and directors were Mr Mann's parents. Mr Mann instructed him to prepare a special power of attorney for signature by Mr Tai, the husband of the 3rd defendant and Mr Mann's father-in-law, to authorise Mr Mann to act for him in the sale of a property at On Kwok Villas. This he did and he acted in the sale of this property; and in due course he handed over the balance of the proceeds of sale to Mr Mann.

8. He said that on 24 August 1992 Mr Mann contacted him and instructed him to prepare a general power of attorney to be signed by the 3rd defendant in favour of the 2nd defendant. This he did and took it to Mr Mann's home in Braemar Hill Road for signature the same evening, for he lived nearby. He said that he fully explained the document to the 3rd defendant, and in particular its effect as a general power of attorney; it would enable the donee to sell all the donor's property and to withdraw money from the donor's bank accounts. He also explained the need to have confirmation of non-revocation if the power was to be used in conveyancing after it was one year old. The 3rd defendant said that she understood that and she trusted her daughter. The POA was then duly signed by the 3rd defendant and attested by Mr Chan. Mr Mann made a copy with his fax machine and Mr Chan was asked to retain the original, since he was to act in the conveyance once a property was found.

9. Mr Chan said that he wanted copies of the Hong Kong identity cards of both the donor and the donee and asked Mr Mann to copy them. Mr Mann could not make copies with his home fax machine, but undertook to send the copies the next day. Two days later he sent from his own office at Bayer China a fax message showing the two identity cards and bearing the usual fax machine print of the sender's name and the date and time of sending which was 26 August 1992 at 10:31 a.m. Mr Chan kept it on his file, and a copy of it is before me.

10. Mr Chan said that the 2nd defendant telephoned him in November 1992 saying that she intended to buy a property in Fortress Garden. She was with an estate agent and wanted to know if she could sign the provisional sale and purchase agreement, because she was to buy jointly with the 3rd defendant. Mr Chan advised her that she could do so but the 3rd defendant's name should be shown as a purchaser. The next day the 2nd defendant telephoned him and confirmed that she had signed the provisional agreement. On this occasion he asked if the property was to be held by the 2nd and 3rd defendants as joint tenants or tenants in common; and he explained the difference to her. He asked her to send a copy of the provisional agreement and this was done.

11. Mr Chan went on to say that he met the 2nd defendant again on 1 December 1992. The formal sale and purchase agreement had been prepared and was to be signed on 2 December. He explained its terms and she confirmed that there was to be a joint tenancy. He or his staff asked if the 3rd defendant was in Hong Kong, because if she was it would be better for her to sign the agreement personally, but they were told that she was not; so the next day the 2nd defendant signed the agreement for herself and as attorney for the 3rd defendant.

12. On this day Mr Chan also filled in an application to the bank for a home purchase loan. He gave the original to the 2nd defendant and advised her to have the 3rd defendant sign it, because his experience told him that if she signed as attorney matters could become more complicated. Completion was due in March, so there was plenty of time to procure the 3rd defendant's signature and in any event he was told that the 3rd defendant would probably return in February. The 2nd defendant took the form, and in February Mr Mann returned it duly signed, with copies and proof of his own financial status, for he was the guarantor. Mr Chan sent Mr Mann off to the bank with the various documents, and in due course he received from the bank an instruction letter to prepare the mortgage and a copy of the facility letter sent to the borrowers.

13. Mr Chan said that on 2 March 1993 the 2nd and 3rd defendants attended his office at about 10.30 a.m. He explained the essential terms of the assignment, the facility letter and the mortgage; and all the papers, including the acceptance of the facility letter, were duly signed by the 2nd and 3rd defendants. He asked them if they wanted the documents interpreted page by page, but they did not, for he had explained the terms. He attested the signatures and signed as having interpreted the documents. He also said that he had explained the difference between joint tenancy and tenancy in common; and he gave the Cantonese terms which he had used.

14. Mr Chan said that before they left he handed over the original POA to the 3rd defendant, for he no longer needed to keep it now that the purchase documents had been signed by the 3rd defendant in person. She immediately handed it over to 2nd defendant and asked the 2nd defendant to keep it. Mr Chan advised her that it was a very important document and should be kept safe. After they had left he prepared his confirmation letter to the bank and sent it by fax to the bank at 11:23 a.m.; his fax machine record shows that time. The bank duly credited the funds and the purchase was duly completed. That, it appears, was the end of Mr Chan's involvement in this matter.

15. Mr Philip Fu Yat Leung said that he received from the plaintiff a standard instruction letter dated 21 March 1997 instructing him to prepare a combined first legal charge and assignment of rental in respect of the BHM and TP properties, to secure banking facilities for the 5th defendant. The banking facilities were to be to the extent of an unlimited amount but his fee was to be charged on the amount of $17,700,000. He duly contacted Mr Warren Mann and asked for all the relevant documents. Mr Mann produced to him the original POA along with the company's documents; he asked why and was told that the 3rd defendant was not in Hong Kong. He advised Mr Mann that since the POA was more than a year old, confirmation would be needed that the it was still valid and had not been revoked. He prepared a confirmation letter for signature by the 3rd defendant, and sent it by fax to Mr Mann on 1 April 1997 with a request that it be dated on the date of the drawdown, and that a copy of the signed document be returned followed by the original to be sent within 14 days. The date for the drawdown, and execution of the mortgage was 4 April 1997. In fact Mr Mann returned a copy, duly signed but not witnessed. Mr Fu asked Mr Mann to get another copy signed and witnessed, and received back such a copy, signed by Mr Mann himself as witness; he was not sure when he had received it, but said that this must have been done before the drawdown, for he could not have confirmed due execution of the mortgage to the bank, and asked for the drawdown, until he had been satisfied that all the papers were in order. In any event the mortgage was duly executed by, among others, the 2nd defendant on her own behalf and as attorney for the 3rd defendant.

16. Mr Fu then on 5 April 1997 sent to Mr Mann a declaration letter to be signed by the 3rd defendant and later received this back, duly signed in her name and bearing to have been witnessed and interpreted by one Louis Kwok Tak Wai. Mr Fu said that he had asked Mr Mann if the 3rd defendant was fully aware of what was being done, and had been told that she was; but he wanted this declaration for his records. The letter purports to declare that the 3rd defendant was fully aware that the property would be charged to the plaintiff for the purpose of securing the general banking facilities of the 5th defendant, of which the 2nd defendant was a shareholder and director; that this had all been disclosed to her; and that she confirmed that the 2nd defendant had the right to act under the POA and ratified acts done by her in respect thereof.

17. The 3rd defendant's evidence was as follows. She went to England with her husband in 1972 and they operated a take-away food shop. All her children were educated in England, but she herself only had a few years of education in the Mainland as a child, and because she worked in the back of the shop, preparing food, she never learnt more than a few simple English words. However, she would often come back to Hong Kong to see her relatives and seek medical treatment. When she did she would stay with her 2nd daughter. She and her husband relied very much on their 1st daughter, i.e. the 2nd defendant, and her son-in-law Warren Mann to handle her personal finance and other matters. Indeed sometimes she would have him take ￡2,000 or ￡3,000 back to Hong Kong from England. She kept an account in Hong Kong with the Kwangtung Provincial Bank as well as a joint account with her husband.

18. In 1992 when the 3rd defendant came to Hong Kong she was planning to find a property to live in on retirement. Her husband had bought the flat at On Kwok Villas in Sheung Shui but she wanted to be in the city, nearer to her children. So she asked the 2nd defendant to find her a property to buy, and the 2nd defendant found the suit property. She was happy with this and she could afford the price of $2,950,000. This came from the proceeds of sale of the flat in On Kwok Villas, a deposit account for $900,000, and two sterling remittances. There was a shortfall of about $150,000 but this was to be made up by the 6th defendant from money given or lent to him or entrusted to him to bring back to Hong Kong. Nothing further was done then. She returned to England and came back to Hong Kong in 1993.

19. While the 3rd defendant was in Hong Kong in 1993, staying with her 2nd daughter, the 2nd defendant took her to her home for supper and to sign documents relating to the purchase of the suit property. After supper Mr Chan the lawyer came in, bringing three or four documents, all in English. She could not read them but assumed that they were for the house purchase. She signed them at the request of her daughter and Mr Chan, but neither of them explained any of the documents. She thought that all was in order after that, and returned to England at the end of her holiday.

20. In 1995 the 3rd defendant and her husband sold up in England and returned to Hong Kong where they lived for a year in the suit property. Because the husband did not like living in the city, they bought a flat in Sheung Shui, in the names of the two sons; they put down the deposit and the sons paid the balance. They went to live in the Sheung Shui flat and the two sons lived in the suit property.

21. Then after the proceedings had been issued, and documents were served at the suit property, her son told her that the bank was trying to repossess it. She asked the 2nd defendant what was happening but was told not to worry and that the 2nd and 6th defendants would deal with it. However, after repeated assurances of this sort, the 2nd and 6th defendants suddenly left Hong Kong for England. The 3rd defendant said that she had had no further contact with her daughter since then, though in fact it appears from the record that they appeared together at interlocutory hearings. There were also inconsistencies in her evidence under cross-examination about her understanding of what share she had in the suit property.

22. Shown the POA, the assignment and the 1993 mortgage the plaintiff said that she could not remember signing any of them, but that the signatures looked like hers. As to the bilingual application to the bank for the home loan she said that the signature on it was not hers, and she had never signed any document with Chinese characters on it. She also denied signing the acceptance chop on the bank facility letter.

23. Shown the letter of confirmation of validity of the POA, dated 4 April 1997, she said that she had indeed signed this; the 2nd defendant had brought it to her at the Sheung Shui residence and had asked her to sign it, saying that it was for a change of solicitor. As to the letter of declaration dated 5 April 1997 she said that she had not signed and that the signature did not look much like hers.

Findings of fact

24. There is considerable conflict between Mr Chan, the solicitor, and the 3rd defendant as to how the documents came into being. If the latter is right, the POA, the assignment and the mortgage were all signed by her - and signed by her they must have been, because although she was very evasive about what she could remember or even whether or not the signatures looked like hers, these are the only English documents that she could have signed - at the same meeting on the evening of 2 March 1993. This is in my view most unlikely. In the first place, there is the fax reproduction of the identity cards of the 2nd and 3rd defendants sent by the 6th defendant to Mr Chan's office on 26 August 1992. There is no reason for that to have been sent other than that Mr Chan should have for his file copies of the cards he saw, but which could not be copied, when the POA was executed. In the second place there is the formal sale and purchase agreement signed by the 2nd defendant as attorney on 2 December 1992. I cannot imagine any normal solicitor letting a client sign as attorney when there was as yet no power of attorney in being. The existence of these documents is only consistent with the POA having been executed on 24 August 1992 as Mr Chan says. In fact the 3rd defendant's immigration records show that she entered Hong Kong on 22 August and left on 2 September 1992; she was in Hong Kong at the relevant time and there is no reason why she should not then have signed.

25. Mr Chan gave his evidence well and he struck me as a perfectly normal solicitor as well as an honest witness. The rest of his part in this matter, in particular the meeting in his office on 2 March 1993 was described in an entirely straightforward way. Again, from the immigration records, the 3rd defendant was in Hong Kong. There was no reason for her not to be asked to execute the documents herself and any prudent solicitor will prefer that to execution by an attorney. Mr Chan's fax machine record shows that the papers were sent to the bank the same morning.

26. If the 3rd defendant's story is true it means that she was cheated by the 2nd and 6th defendants. They took her money, with which she intended to buy the suit property outright for herself, and instead they mortgaged the property to borrow money from the bank (which they seem to have repaid) and palmed her off with a joint tenancy with the 2nd defendant. It is difficult to see why they would want to do that in any event, in 1993. The property was not used as a guarantee for third party borrowings until 1995.

27. If the 3rd defendant's story is true it also means that Mr Chan was not only a party to this curious conspiracy but also to a devious and dangerous arrangement whereby the 2nd defendant contracted as attorney to buy property when she was not an attorney at all. I find this all extremely hard to imagine let alone believe.

28. The 3rd defendant was evasive. Cross-examination showed unexplained inconsistencies between her evidence and her statements to the police, as well as her evidence and court records. She struck me as the kind of witness who has some truth on her side but thinks that it is not enough, so adds some fiction to assist it. I have no hesitation in preferring Mr Chan's evidence where there is a conflict. There is absolutely no reason why he as a prudent solicitor should have failed to advise her of the meaning of the documents which she was signing, both when she signed the POA and the other documents. I have no doubt that he did. I have no doubt that the 3rd defendant understood him and told him that she understood him.

29. I have no doubt that the POA, the Assignment and the 1993 mortgage were all validly executed and that the 3rd defendant executed them in the full knowledge of what she was doing and what the documents meant. I have no doubt also that once the 1993 transaction had been completed the POA was handed over to the 2nd defendant. There is no evidence that it was ever revoked either in writing or informally by being called in by the 3rd defendant.

30. There is no evidence to contradict the 3rd defendant's story of payments to the 6th defendant but I cannot find that they were intended for the purchase of the suit property, because if they were there was simply no need for the 3rd defendant to have entered into the 1993 mortgage.

31. It is after this that the uncertainties creep in. The 1995 mortgage to the plaintiff was executed by the 2nd defendant as attorney for the 3rd defendant. There is no evidence that the 3rd defendant knew anything about this, and Mr Fu, the solicitor who acted for the plaintiff in that matter, cannot throw any light on it. Presumably he saw a confirmation that the POA was still unrevoked but such confirmation is not in evidence. It was by this mortgage that the suit property was first charged as security for banking facilities for a third party, Woonli Ltd.

32. Then we come to the 1997 mortgage. It was executed on 4 April 1997, at a time when the 3rd defendant says, and immigration records show that she was in Hong Kong. The fact that the 2nd defendant used the POA, and that the 6th defendant told Mr Fu, when asked, that the 3rd defendant was out of Hong Kong, suggests that the two of them were keeping her out of the picture. She says that she did sign the very short confirmation letter, Exhibit D4; that is not unbelievable, because even if she could not read it, she might well recognise a very short letter in English. While her story that she was told that it was for a change of solicitor, when, so far as she was concerned, there was nothing that needed the services of a solicitor, seems unlikely, there is no positive evidence in this case as to what she was told. The same applies to the declaration letter Exhibit D5; she says that she did not sign it at all, and there is no positive evidence that she did. The whole business of a copy of the confirmation letter being sent to the 6th defendant, and returned without a witness's signature, and then its being sent again and returned with the 6th defendant's signature as witness all seems suspicious given that the 3rd defendant was in Hong Kong and could have been asked to attend at the solicitor's office in person. It seems to me more probable than not that the 3rd defendant was in some way deceived by the 2nd and 6th defendants over this mortgage. It is true that she does not specifically plead misrepresentation; she pleads that she was never approached for her consent to the mortgage. I accept that it is more probable than not that she was not approached for her consent to this mortgage and did not in fact consent to it.

The legal consequences

33. The 3rd defendant's case is that the Plaintiff and its solicitor had failed to take reasonable steps to ascertain, or should have been put on enquiry as to whether the then retired 3rd defendant had revoked the 5 years old POA; or secondly, that the 1997 mortgage is voidable in equity for misrepresentation and/or undue influence by the 2nd and/or 6th defendant, or thirdly that it is in any event an unconscionable bargain.

34. I have to start from the fact that on my finding the 3rd defendant knew nothing about and did not consent to the 1997 mortgage. Whether the 2nd and 6th defendants misrepresented the position to her, or unduly influenced her is immaterial. Really what happened was that the 2nd defendant exercised her powers under the POA to do something to which, had the 3rd defendant known of it, she would not have consented. But the POA was still in existence. It had never been revoked. The 3rd defendant does not say it had ever been revoked; what she says is that she never knew of its existence, except perhaps as a piece of unintelligible paper that she had signed.

35. The POA is a general power of attorney made in the form set out in the Schedule to the Powers of Attorney Ordinance, Cap.31 ("the Ordinance"). Section 7 of the Ordinance provides :

"(1) Subject to subsection (2), a general power of attorney in the form set out in the Schedule, or in a form to the like effect but expressed to be made under this Ordinance, shall operate to confer -

(a) on the donee of the power; or

(b) if there is more than one donee, on the donees acting jointly or acting jointly or severally, as the case may be, authority to do on behalf of the donor anything which he can lawfully do by an attorney.

(2) This section does not apply to functions which the donor has as a trustee or personal representative."

36. The 3rd defendant's first argument seems to be that because the POA was more than 12 months old, it was the duty of the plaintiff or its solicitor to make reasonable inquiries as to whether the 3rd defendant had revoked it. Section 5 of the Ordinance is relevant.

37. Section 5 provides :

"(1) ....

(2) Where a power of attorney has been revoked and a person, without knowledge of the revocation, deals with the donee of the power, the transaction between them shall, in favour of that person, be as valid as if the power had then been in existence.

(3) .....

(4) Where the interest of a purchaser depends on whether a transaction between the donee of a power of attorney and another person was valid by virtue of subsection (2), it shall be conclusively presumed in favour of the purchaser that that person did not at the material time know of the revocation of the power if -

(a) the transaction between that person and the donee was completed within twelve months of the date on which the power came into operation; or

(b) that person makes a statutory declaration, before or within three months after the completion of the purchase, that he did not at the material time know of the revocation of the power.

(5) ......

(6) In this section -

'purchaser' means -

(a) a purchaser in good faith for valuable consideration;

(b) a lessee, mortgagee or other person who for valuable consideration acquires an interest in property; and

(c) an intending purchaser; and

'valuable consideration' includes marriage but not a nominal consideration in money.

(7) ...."

38. The effect of this is to protect a purchaser, as defined, who contracts with the attorney after the power has been revoked so long as he has no knowledge of the revocation. Lack of knowledge is conclusively proved in the circumstances provided for in subsection (4). Otherwise, the purchaser will have to prove his lack of knowledge. This is relevant if and when the purchaser comes to re-sell. In DH Shuttlecocks Ltd v. Keung Siu Tang (1993) 2 HKC 600, Rhind J held that :

"The combined operation of ss 13 and 35, together with Pt II of the First Schedule, of the Conveyancing and Property Ordinance bring about the result that the vendor is required to prove the validity and non-revocation of the power of attorney, in the usual way, as an essential link in the title."

39. That is no doubt why a prudent solicitor will obtain confirmation of non-revocation of a power of attorney which is more than 12 months old. It is also relevant where as here the title is challenged. However, there is no general duty on the purchaser to inquire as to revocation, he can still rely on the power of attorney at his own risk.

40. If the purchaser knows of the revocation, then of course he is not in good faith. If he can be fixed with constructive notice of revocation it seems probable that he will be unable to acquire a good title and the donor will be entitled to have the transaction set aside. However, I do not think Mr Fu was put on inquiry as to non-revocation. His evidence, and there is nothing to contradict it, is that he sent the confirmation letter to the 6th defendant on 1 April 1997. The fax machine print on the copy shows that it was sent at 13:39 hours. Some time between then and when he wrote to the plaintiff to confirm that the mortgage had been executed and ask for the drawdown of funds (which the correspondence shows was intended to happen before 10 a.m. on 4 April 1997) he received back a copy which was signed but not witnessed, and a copy which was signed and witnessed by the 6th defendant. Before he sent out the letter on 1 April there was nothing to put him on inquiry that the POA might have been revoked. It is argued that the chain of events thereafter should have put him on inquiry. With respect I do not see that this necessarily follows. All he needed was sight of a copy of the signed confirmation letter before the attorney signed the mortgage, with the original to follow later; and he got it.

41. Given that the POA was validly executed and had never been revoked, in fact this is all rather academic. I turn to the second and third arguments. Here we have something of a conflict between two principles. The first is the equitable principle applied most notably in Barclays Bank plc v. O'Brien [1993] 4 All ER 417 and most recently in Royal Bank of Scotland v. Etridge (No.2) and other appeals [2001] 4 All ER 449 that where a surety obligation is procured by the undue influence, misrepresentation or other legal wrong of the principal debtor, and the creditor knows of a relationship between the principal debtor and the surety from which undue influence may be presumed, then unless the creditor takes reasonable steps to ensure himself that the surety enters into the obligation freely and in knowledge of the true facts, he will be unable to enforce the surety obligation because he is fixed with constructive notice of the surety's right to set aside the transaction. The other principle is that a third party dealing with an attorney is not bound to go behind the authority of the attorney, and inquire whether his motives did or did not involve the application of the authority for his own private purposes.

42. Leaving aside for the moment the existence of the POA the position is this. The plaintiff agreed to lend money to the 5th defendant on the security of, inter alia, a mortgage of the suit property which was owned by the 2nd and 3rd defendants as joint tenants. The 2nd defendant was a director and shareholder of the 5th defendant. She is also the daughter of the 3rd defendant. The plaintiff through its solicitor Mr Fu knew of the relationship; that is clear from the declaration letter (Exhibit P5) which Mr Fu drafted. The mortgage was to be an "all monies" mortgage, and the facilities, as instructed to Mr Fu, were to be for at least $17,700,000, for that was the figure on which he was to charge his fee. The 3rd defendant could lose her interest in the suit property, and become liable for the full indebtedness of the borrower, i.e. the 5th defendant, if it failed to pay the plaintiff. The transaction was manifestly disadvantageous to the 3rd defendant who herself had no interest in the 5th defendant.

43. Had the 3rd defendant been the wife rather than the mother of the 2nd defendant this would have been exactly the situation dealt with in the series of cases from O'Brien to Etridge. The plaintiff would have been put on inquiry and required to take reasonable steps to bring home to the 3rd defendant the risk that she was running, and to advise her to obtain independent legal advice. A fortiori in this case, for the relationship of parent and child is one of the relationships where the law irrebuttably presumes the existence of trust and confidence; per Lord Nicholls in Etridge at para.18 on page 459 and para. 85 on page 475. Further the O'Brien principles are not limited so as to put a lending bank on inquiry only in cases of husband and wife or sexual partners; per Lord Nicholls, again, at page 475 h :

"The older generation of a family may exercise undue influence over a younger member, as in parent/child cases such as Bainbrigge v. Browne (1881) 18 Ch D 188 and Powell v. Powell [1900] 1 Ch 243. Sometimes it is the other way round, as with a nephew and his elderly aunt in Inche Noriah v. Shaik Allie Bin Omar [1929] AC 127, [1928] All ER Rep 189. An employer may take advantage of his employee, as in the Credit Lyonnais case. (Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144.) But it may be the other way round, with an employee taking advantage of her employer, as happened with the secretary/companion and her elderly employer in Re Craig (decd) [1970] 2 All ER 390, [1971] Ch 95. The list could go on."

44. Mr Fu obviously recognised that he had a duty in this regard. According to him he asked the 6th defendant if the 3rd defendant was fully aware of what was done; the 6th defendant told him that she was; he said that he wanted a record of the fact that she was aware and so prepared Exhibit P5 so that the 6th defendant could get the 3rd defendant to sign it. Was this enough?

45. Here there was no independent advice. At best Mr Fu had the word of the 6th defendant that the 3rd defendant was fully aware of what was being done, and subsequently saw a signature on a paper to this effect. But he had entrusted the 6th defendant to procure this. See also Avon Finance Co. v. Bridger [1985] 2 All ER 281 where a mortgage of parents' property, procured by their son who was entrusted by the lender to do so, was held to be voidable in equity as against the lender.

46. I do not think there can be any doubt that what Mr Fu did was not enough, or at any rate would not have been enough if the 3rd defendant had herself signed the 1997 mortgage. The question is what difference the POA makes.

47. In the normal case one who deals with an attorney is entitled to rely on the power of attorney and need not go behind it. See Bryant, Powis and Bryant Limited v. The Quebec Bank [1893] AC 170 where at 180 the Privy Council approved the following principle :

"Whenever the very act of the agent is authorised by the terms of the power, that is, whenever by comparing the act done by the agent with the words of the power, the act is in itself warranted by the terms used, such act is binding on the constituent, as to all persons dealing in good faith with the agent; such persons are not bound to inquire into facts aliunde. The apparent authority is the real authority."

In Hambro v. Burnand [1904] 2 KB 10 at 20, Collins MR observed :

"... where a written authority given to an agent covers the thing done by him on behalf of his principal, no inquiry is admissible into the motives upon which the agent acted. It would be impossible, as it seems to me, for the business of a mercantile community to be carried on, if a person dealing with an agent was bound to go behind the authority of the agent in each case, and inquire whether his motives did or did not involve the application of the authority for his own private purposes."

So, even where the attorney uses the power to defraud the donor, the person dealing with the attorney will be protected provided always that he is in good faith.

48. The mercantile reasons for this are given by Collins MR above. Leaving aside strictly mercantile reasons there may be many situations where an individual living overseas gives a family member in Hong Kong a power of attorney to deal with funds or property held here, or vice versa. It would be extremely awkward if banks had to go behind every minor transaction which may be carried out by an attorney in these circumstances. However, at the same time, if the lender can rely absolutely on a power of attorney to get around the O'Brien principle this must be dangerous for the mortgagor whose mortgage has been procured by undue influence, misrepresentation or other legal wrong. On the other hand, by executing a general power of attorney the donor in any event deprives himself of any recourse against a third party dealing in good faith with his attorney.

49. Counsel for the plaintiff has cited the case of Standard Chartered Bank v. Tang Chun & Anor, HCMP 3289 of 1998. In that case, two persons residing overseas gave a statutory general power of attorney in favour of a person resident in Hong Kong who mortgaged their property to a bank to secure banking facilities for a borrower with whom they had no connection. Deputy Judge Li held inter alia that in circumstances which did not arouse reasonable suspicion there was no duty on the lender to make inquiries. However that case, while of assistance as to the general principles, arose out of different circumstances. There was, so far as I can see, no question of any relationship between the donors of the power and the attorney which might have brought the case within the O'Brien principle.

50. Under O'Brien the lender, if he is to avoid being fixed with constructive notice of some legal wrong, must take reasonable steps to bring home to the surety the risk that he is running, and advise him to obtain independent legal advice. Alternatively he could avoid being fixed with constructive notice if he had evidence that the surety had obtained such advice elsewhere. If the 3rd defendant had in this case executed a special power of attorney for the purpose of the mortgage, it might have been open to the plaintiff to rely on it as indicating that she must have known what she was doing, and what risks she was running; for the solicitor who drew up the power should have so advised her. But in this case the POA was a general power, and five years old. It entirely left open the question of whether the donor had ever addressed her mind to the risks she might run in future if it were used to mortgage her property. There was nothing on which the plaintiff or its solicitor could rely.

51. It would have been easy enough for Mr Fu to make inquiries in this case. The 3rd defendant's address was given as the suit property. She was said to be out of Hong Kong. He could have asked where she was, and how she could be contacted. In this day and age it is easy enough to contact anyone, anywhere in the world. We are not dealing with the world as it was in 1893 or 1904 when communication was, at its quickest, by telegraph. The properties were being mortgaged to secure banking facilities; there was no purchase involved and no completion date to meet so there was not necessarily any great urgency.

52. The other aspect of this case is this. An attorney is an agent. No act done by an agent in excess of his actual authority is binding on the principal with respect to persons having notice that in doing the act the agent is exceeding his authority. See Bowstead and Reynolds on Agency, 16th Ed., para 8-051. Where an attorney acts in excess of the powers conferred on him and the third party knows or ought to know of it the donor will be entitled to have the transaction set aside. See Tai Che Ching & Ors v. Overseas Trust Bank [1989] 2HKC 104. Per Kempster JA at 108 :

"It would be surprising if the terms of an agent's appointment were to be found susceptible of the construction that he was permitted to act otherwise than in the interests of his principal. As Russell J observed in Reckitt v. Barnett, Pembroke and Slater Ltd [1929] 2 KB 244, 268 in the course of a judgment subsequently approved in the House of Lords ([1929] AC 176) :

'It is said that the plaintiff's statement to the bank that he wishes the power of attorney to cover the drawing of cheques upon them by Mr Woodhouse "without restriction", operates to enlarge the powers conferred by the power of attorney, and to such a sweeping extent that Lord Terrington became authorized to do what he liked with the plaintiff's moneys, even to the extent of applying them in payment of his own personal debt. It would need words unambiguous and irresistible to enable me to attribute such a meaning and intention to a power of attorney. The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property.'"

53. These cases are concerned with special powers of attorney but the principle must equally apply to a statutory general power of attorney. It may be argued that a general power of attorney on its face authorises any act by the attorney which the principal could do by an attorney and therefore on the authority of Hambro v. Burnand no inquiry is ever admissible but this seems questionable precisely because an attorney with a general power is so easily able to benefit himself at the expense of his principal. In fact the apparent authority may well not be the real authority because the apparent authority is so wide. This makes it all the more necessary for caution on the part of the third party.

54. In this case the 2nd defendant was purporting to act as attorney to confer a benefit, not on her principal but on her own company, in a transaction which inevitably involved a manifest disadvantage to the 3rd defendant who had no interest in the 5th defendant and would receive no benefit from the banking facilities given to it. The plaintiff knew that; it was implicit in the transaction. The 2nd defendant was in the same position as an attorney who makes a present to himself or others of his principal's property. Notwithstanding the general nature of the POA the plaintiff's knowledge must have put it on inquiry as to whether the 2nd defendant was acting within the scope of her real authority. This is particularly so having regard to the age of the POA.

55. I do not mean to say that in any case where an attorney acts under a statutory general power of attorney to confer a benefit on himself, the third party to the transaction is necessarily put on inquiry, and liable to be fixed with constructive notice of the lack of authority if he does not make sufficient inquiry; that may well be so but it is not necessary to hold it for the purposes of this case. However, it seems to me that in this case the plaintiff was already put on inquiry and liable to be fixed with constructive notice of undue influence, misrepresentation or other legal wrong if it did not make sufficient inquiry. It, or its solicitor Mr Fu, did not make sufficient inquiry. He relied entirely on what the 6th defendant, who also benefited, told him and on Exhibit P5 which the 6th defendant was sent to have signed by the 3rd defendant. That could in no way be regarded as taking reasonable steps to ensure that the 3rd defendant knew what she was doing, or was independently advised. I do not see how the plaintiff can now rely on the POA to protect it from the consequences of that failure in circumstances where the 2nd defendant's authority to benefit herself under the POA was also in question.

Conclusion

56. It follows that the plaintiff's claims against the 3rd defendant must be and are dismissed with costs to the 3rd defendant to be taxed if not agreed. There will be judgment in favour of the 3rd defendant for a declaration that the 1997 mortgage is null and void as against the 3rd defendant and for an order that the registration of the mortgage with the Land Registry be vacated forthwith, and the costs of the counterclaim, to be taxed if not agreed. The costs orders are nisi.

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