CITIBANK, N.A. v. YORK STAR CO LTD AND OTHERS

HCA 526/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 526 OF 2016

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REASONS FOR DECISION

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Introduction

1.  This is an appeal brought by the 5^th defendant against an order of the Master made on 29 December 2016 by which the Master granted the plaintiff’s application for summary judgement against the 1^st, 2^nd, 3^rd and 5^th defendants.  Judgement was entered, on a joint and several basis, in the sum of HK$8,147,625.12 calculated up to 24 April 2016, plus interest and costs on that sum.

Background

2.  The 1^st defendant in these proceedings is a company to which the plaintiff granted certain credit facilities pursuant to facility letters executed in 2014 and 2015.  The plaintiff contends that it was a condition of it granting the credit facilities that guarantees should be provided including, among others, that the 5^th defendant should guarantee certain liabilities of the 1^st defendant.  The credit facilities were drawn on by the 1^st defendant.

3.  In his pleaded defence, which was filed on 7^th April 2016, the 5^th defendant denies any knowledge of the loan documentation, or the requirement for a guarantee, or the indebtedness of the 1^st defendant. He pleads that the received “no consideration in this dealing nor in this guarantee with the bank”.  He states that he was under no financial or legal obligation to act as guarantor and alleges, that he acted “under undue influence and/or duress known to the plaintiff in relation to the guarantee obligation ...”.  It is reiterated that “... the plaintiff knows that the 5^th defendant did not enter into the guarantee voluntarily”.

4.  The 5^th defendant appears to have been acting in person at the time that his Defence was prepared, but has subsequently engaged solicitors to act on his behalf and was represented by counsel at the hearing before me.  The 5^th defendant is the son of the 3^rd and 4^th defendants; their only child.  The 3^rd and 4^th defendants were, in turn, the shareholders and directors of the 1^st defendant, and the 5^th defendant an employee of the 1^st defendant. 

5.  Following the issue by the plaintiff of the summons for summary judgement the 5^th defendant made an affirmation in opposition to the application.  In this he stated that he had no recollection of ever having met the bank officer who witnessed the execution of the guarantees, and who made the affirmation on behalf of the plaintiff in support of the summary judgement application.  More significantly perhaps, he stated that his dispute with the claim was not as to the content of documents said to have been signed by him that “turned out to be guarantees”, but rather the circumstances in which those documents were said to have been signed.

6.  He stated that he had no recollection of signing the guarantees relied on by the plaintiff in this claim, but does have a vague recollection of being asked by his parents to sign some documents in the conference room at the 1^st defendant’s office at about the relevant time.  He says that once the documents were signed there were taken away from him and he had no opportunity to review them, nor was he ever advised that he was able to seek independent legal advice on these documents.

7.  The 5^th defendant made a 2^nd affirmation on 20 July 2016 on his own behalf and on behalf of his mother, the 3^rd defendant, dealing primarily with the sale of a family property following the unfortunate and unexpected demise of his father.  As regards the making of the guarantee by him, his further evidence was that neither he nor, he says 3^rd defendant, have any recollection of an officer of the plaintiff attending the premises of the 1^st defendant to witness the signing of the guarantees by the 3^rd, 4^th and 5^th defendants.  To the best of his recollection “it seemed more likely” that documents were delivered to the 1^st defendant’s premises by a messenger and subsequently collected after signature.

8.  The plaintiff’s evidence, through the affirmation of Choi Ming Yin, was that the guarantee document had been signed at the offices of the 1^st defendant and that the guarantee had been explained to the 3^rd and 5^th defendants. Mr Choi disputed the 5^th defendant’s description of himself as ‘merely’ an employee of the 1^st defendant, referring to the 1^st defendant’s Annual Return, which showed the 5^th defendant to be a director of the 1^st defendant.  It appears however that he was indeed no more than an employee at the time that the guarantee was executed, becoming a director of the 1^st defendant some time later.  After these proceedings commenced forms were filed with the Companies Registry recording that the 5^th defendant had ceased to be a director on 31 January 2016.

9.  Mr Choi pointed out in his affirmation that the guarantee was in both English and Chinese and included a declaration by the guarantor that the guarantor’s attention had been drawn, among other things, to a statement in the guarantee to the effect that legal or other professional advice should be considered before signing the guarantee.  Mr Choi states that he specifically mentioned this to 5^th defendant who stated that such advice was not necessary.

The basis of the appeal

10.  It is trite that an appeal from a master to the judge in chambers is by way of a rehearing of the original application.  While due regard will be given to the decision of the master, the matter is to be considered afresh.  The 5^th defendant served a notice of appeal which contended that the master had failed to give due consideration to the financial circumstances of the 5^th defendant; had wrongly exercised his discretion in finding that matters in the 5^th defendants affirmations were a sham; contending that there were factual issues that ought to go to trial; and contending that the master gave undue weight to the evidence of the plaintiff and insufficient weight to the evidence of the 5^th defendant.

11.  Counsel for the 5^th defendant focused his submissions on the ‘undue influence’ said to be evidenced by the 5^th defendant’s 1^st affirmation.  In other words, the 5^th defendant relies on having been told by his parents to sign certain documents, the nature of which were not explained to him, in circumstances in which he derived no benefit from the credit being granted to the 1^st defendant.

Undue influence

12.  It is not disputed between the parties that the relationship between parent and child may give rise to circumstances in which the consent of a party to a transaction may be given other than freely, or without full and proper information being available as to what it is to which consent is being given.  As was stated by Mr Recorder Ma SC (as he was at that time) (at paragraph 34):

“ ... the defence of undue influence is ultimately a simple concept. It has all to do with informed consent. Once a court forms the view that consent was freely given with full knowledge of the consequences of entering into the relevant transaction, that is the end of the matter, however improvident the transaction may objectively appear. The rationale for the defence of undue influence is to prevent victimisation of the complainant. It is there to protect people from being forced, tricked or misled in any way by others into entering into a disadvantageous transaction ....”

See: Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358.

13.  This defence is no different to many others, insofar as it is the obligation of the party asserting undue influence to prove that allegation.  Whether or not a transaction has been brought about by the exercise of undue influence is a question of fact, and the evidence required to establish such a defence will, in the usual course, encompass details of the relationship between the parties, the extent and nature of the alleged undue influence, the personalities of the parties in question, and facts going to show the way in which the transaction, in the circumstances of the case, cannot readily be accounted for by the ordinary motives of persons in that particular relationship.

14.  Where however there is evidence that the person complaining of having been subjected to undue influence placed trust and confidence in the party alleged to have exerted undue influence, then the court may infer, absent a satisfactory explanation, that the impugned transaction can only have been brought about through the exercise of undue influence.  See Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at 796 (Lord Nicholls).

15.  In certain cases, the court may presume undue influence to have been a factor in the transaction such that the evidential burden lies on the other party (or a relevant third party) to show that the transaction was entered into freely; commonly by showing that the party complaining had independent advice, or the opportunity to take such advice.  The complaining party need not provide proof of having actually placed trust and confidence in the party exercising the presumed influence over him or her.

16.  In Royal Bank of Scotland plc v Etridge (No 2) [2001] 3 WLR 1021, Lord Scott of Foscote stated (at paragraph 153):

“ First, the class 2 presumption [presumed undue influence] is an evidential rebuttable presumption. It shifts the onus from the party who is alleging undue influence to the party who is denying it. Second, the weight of the presumption will vary from case to case and will depend both on the particular nature of the relationship and on the particular nature of the impugned transaction. Third, the type and weight of evidence needed to rebut the presumption will obviously depend upon the weight of the presumption itself.”

Submissions

17.  Counsel for the 5^th defendant acknowledged that there was but a single issue in the case, namely whether the guarantee transactions had been procured through the undue influence exercised by the parents of the 5^th defendant.  It was acknowledged on behalf of the 5^th defendant that there was no evidence of actual undue influence having been exercised, but the presumption of undue influence in a parent and child relationship was relied on as requiring the plaintiff bank to make appropriate enquiries and give appropriate warnings to the 5^th defendant.

18.  Whether the plaintiff had done so would be a matter for trial.  Disputes exist, it was submitted, as to the facts emerging through the affirmations as to the precise circumstances in which the guarantees were executed, and as to whether or not the 5^th defendant had the opportunity to properly peruse the documents he signed, or had been informed by the bank of the advisability of obtaining independent legal advice. This was a situation in which, it was submitted, a trial was appropriate so as to allow the factual discrepancies appearing between the affirmation evidence of the parties to be investigated and resolved.

19.  Counsel for the plaintiff reminded me of the court’s approach to applications for summary judgement and, in particular, the burden placed upon a defendant faced with such an application to show a triable issue or an arguable defence, with sufficient particulars being provided through the affidavit or affirmation filed on behalf of the defendant to enable the court to assess the existence, or otherwise, of a real issue or a bone fide defence.

20.  The plaintiff submitted that the evidence of the 5^th defendant did not sufficiently “condescend on particulars” to meet this requirement.  There was scant explanation offered for the fact that the 5^th defendant had signed the relevant guarantee documents, which included his signature being placed against a warning notice both English and Chinese language recommending him to consider obtaining legal advice, and his signature appearing against confirmations in both languages that a named officer of the plaintiff had explained to him, among other things, the terms of the “Warning Notice”.

Analysis

21.  The 5^th defendant has signed guarantees with specific warnings as to the adviseability of independent legal advice.  It is of course well known that the fact that a document has been signed by a party does not preclude that party from bringing forward evidence to show that the signature was not evidence of informed consent or agreement on the part of the party signing.  It is equally trite however that there is a substantial evidential burden placed on such a party: see for example The Hong Kong Chinese Bank, Ltd v Santa Fur Co Ltd (unreported; 4 October 1999, HCMP 266/1999 at paragraphs 9 – 11); and Bank of China (Hong Kong) Ltd v Leigh Hardwick (unreported; 28 August 2013, HCA 1110/2006) at paragraphs 20 – 26.

22.  In the present case the 5^th defendant has provided no evidence on which the court could form a view that his signature of these documents represented anything other than his informed consent to act as guarantor.  His explanation of the circumstances in which he came to sign is bereft of any relevant detail, and nor is there any detail as to the actual involvement ofhis parents or the background leading up to the execution of the guarantees.  There is no evidence given as to his personal circumstances upon which the court could form a view as to the implication of any presumed influence exerted by his parents.  There is, on the other hand, evidence to suggest that the 5^th defendant is an adult, actively engaged in business and, at one time at least, a director of the principal debtor, the 1^st defendant.  Correspondingly, the weight to be attached to the presumption of undue influence that arises in a parent and child situation, is low.  The evidential burden on the plaintiff to show that the 5^th defendant was properly advised of the risks inherent in the guarantee was easily met by the plaintiff.

23.  In those circumstances the court concluded that the 5^th defendant had not discharged the burden which lay upon him of showing triable issues, or other reasons for which this matter should proceed to a trial.  The 5^th defendant’s appeal against the decision of the Master was, accordingly, dismissed.  Costs were awarded to the plaintiff on an indemnity basis, in accordance with the terms of the guarantee document.