RE LEUNG LAI HING CINDY

HCB 6777/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6777 OF 2015

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J U D G M E N T

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Introduction

1.  There is before this court an amended bankruptcy petition re‑filed on 16 November 2015 (“Petition”) presented by Banco Nacional Ultramarino SA (“Bank”) against Madam Leung Lai Hing Cindy (“Debtor”).  The Petition is based on the non‑compliance with a statutory demand dated 5 September 2014 (“statutory demand”) for the sum of over HK$6.2 million (“Debt”).  There was no application by the Debtor to set aside the statutory demand.  There is no dispute as to service.

2.  The statutory demand was founded on the debt due and owing by the Debtor as guarantor of the indebtedness of Mr Law Yan Loy (“Law”) who owned a furniture business (“Saloy Tradings”).  Law is the Debtor’s ex‑husband, they having been divorced in 2012.

3.  Law / Saloy Tradings entered into an Overdraft Agreement dated 19 July 2004 (“OD Agreement”) and a Trust Receipts Agreement dated 19 July 2004 (“Trust Receipt Agreement”), together with several written amendments (the last of which was in February 2009) (“Agreements”), in order to obtain facilities from the Bank.  The indebtedness of Law / Saloy Tradings under the Agreements was also secured by promissory notes of various amounts.  The Debtor also signed the Agreements in her capacity as “endorser” of the promissory notes and “guarantor and principal payer” regarding the obligations under the Agreements.

4.  According to the Bank’s evidence, the Debtor in fact signed the Agreements before different public notaries in their respective offices.  Particulars of the date of signing and the names of the public notaries are listed below:

Documents	Date of Signing	Public Notaries
Overdraft Agreement	19 July 2004	Maria de Fátima Pedro
Trust Receipts	19 July 2004	Maria de Fátima Pedro
Amendment to Trust Receipts Agreement	10 May 2005	Norma Maria de Assis Marques
Amendment to Trust Receipts Agreement	15 November 2005	Maria de Fátima Pedro
Amendment to Trust Receipts Agreement	9 June 2006	Isabel Dillon Lei do Rosário
Amendment to Trust Receipts Agreement	29 November 2006	Norma Maria de Assis Marques
Amendment to Trust Receipts Agreement	18 June 2007	António José de Sousa
Amendment to Overdraft Agreement	16 October 2007	Iun Ka Wai
Amendment to Trust Receipts Agreement	2 February 2009	Henrique P. de C. Pereira

5.  Law failed to repay the Bank under the Agreements.  On 28 October 2015, Law was adjudicated bankrupt on the petition of another creditor.

Deliberation

6.  It is well‑established that in order to successfully oppose a Petition, a debtor has to show a bona fide dispute to the debt on substantial grounds, by sufficiently precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one: Re Wong Lo Fung unrep; HCB 1864/2013; 29 August 2014 at [25]–[26].

7.  It is equally well‑established that bankruptcy proceedings are summary in nature and are not intended to be used for the purpose of debt collection.  Where there is a bona fide dispute turning to a substantial extent on disputed questions of fact which require viva voce evidence, such disputes could not properly be decided on a Petition in which case the Petition should be dismissed: Re Yuen Mun Wah (debtor) [2015] 2 HKLRD 108.  The jurisdiction to make a bankruptcy order is only exercised in very clear cases: Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850. 

8.  In the present case, the Debtor opposes the Petition on the basis that there are bona fide disputes to the Debt on substantial grounds.  The two grounds advanced by Mr Cheung on her behalf are:

a. The Debtor did not read Portugese, and did not understand the nature and contents of the Agreements that she had signed.  She thought they were simply bank account opening documents, documents appointing her to be Law’s authorised person or confirming changes to the Bank’s terms and conditions, instead of documents rendering her liable for the indebtedness of Law / Saloy Tradings.  In legal parlance, non est factum: see Skeleton Submissions of the Debtor at paragraph 15; Debtor’s 2^nd affidavit dated 4 November 2015 (“Leung 2”) and 4^th affidavit dated 25 July 2016 (“Leung 4”).

b. The Debtor was under the undue influence of Law when she was asked to sign the Agreements: see Skeleton Submissions of the Debtor at paragraphs 7 to 14 and Leung 4 generally.

9.  The starting point is this.

10.  Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states.  Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed: Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at [84].  A person is bound by his signature to a document whether or not he reads it or understands it unless there is shown to be a recognized legal basis for concluding that his apparent consent has been in some way vitiated: Re Wong Lo Fung unrep, HCB 1864/2013, 29 August 2014 at [32].

11.  The defence of non est factum can be disposed of very briefly.  

12.  There is a heavy burden of proof on the person who seeks to invoke this defence — it will be a rare case in which a person who does not suffer from a disability will be able to invoke non est factum when he has signed a document without checking to see what it is: Chitty on Contracts (32^nd ed) Vol 1 at paragraph 3‑056.  Importantly, carelessness on the part of the person signing the document would exclude the plea of non est factum: Saunders v Anglia Building Society [1971] AC 1004, 1019 (per Lord Hodson); 1036‑7 (Lord Pearson).

13.  At paragraph 15 of Leung 4, the Debtor said, with reference to her first visit to the Bank with Law to sign documents in July 2004, she fully trusted Law and, as told by Law, thought they were only for the purposes of opening a bank account and appointing her as Law’s “authorised person”.  At paragraph 19 of Leung 4, the Debtor said, referring to her subsequent visits to the Bank with Law to sign further documents, Law told her, and she thought, the documents were required by the Bank to confirm they agreed to the revisions to the Bank’s terms and conditions.

14.  In my view, these bare and self‑serving assertions of the Debtor are neither sufficiently precise nor believable.  The reasons are numerous but this court needs only to state three.

15.  First, each and every one of the Agreements contained a HK dollar figure in the first paragraph on the front page.  Take the OD Agreement and its subsequent amendments for instance.  The OD Agreement set out the figure “HKD 300,000”.  In the written amendment dated 16 October 2007, the three figures “HKD 1,500,000”, “HKD 300,000” and “HKD 1,800,000” appeared prominently.  In the Trust Receipt Agreement, the figure “HKD 1,200,000” appeared on the front page.  Again, in the written amendment dated 10 May 2005, the three figures “HKD 800,000”, “HKD 1,200,000” and “HKD 2,000,000” appeared prominently.

16.  Importantly, on the Bank’s evidence, on each of the occasions when the Debtor went to Macau to sign documents, it was before a public notary.

17.  In my view, one does not have to be well‑educated to realise these documents were not account opening forms, letters of appointment of authorised person or confirmation of amendments to terms and conditions.  A fortiori, when on the Bank’s evidence, which is not seriously disputed, on each of the occasions when the Debtor went to Macau to sign documents, it was before a public notary.  The Debtor was prepared to admit that on three or four such occasions, she signed some documents before a public notary.  It seems to this court no one with any common sense would think that he needs to go before a public notary to open a bank account, become an “authorised person” or to confirm the amendments to the bank’s terms and conditions.  For someone like the Debtor, who had received education up to Form Six level and had been working for HSBC as a clerk since 1982, the suggestion that she thought the documents were only for those purposes is simply not believable.

18.  Second, as discussed above, carelessness on the part of the person signing the document would exclude the plea of non est factum.  This court is of the firm view that for a person of full age and understanding to sign documents in a foreign language which he does not understand on numerous occasions over a period of almost 5 years, without asking for a translation or explanation of its nature and contents, amounts to carelessness.  After all, as Litton NPJ said in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Another (2002) 5 HKCFAR 515 at [51]:

“......the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.”

19.  Third, in two handwritten letters in Chinese from the Debtor to the Bank dated 9 January and 2 March 2015, the Debtor acknowledged her liability to the Bank and asked for its “indulgence” so as to exempt her from such liability.  Obviously, the Debtor realized she had incurred liability to the Bank, which is totally inconsistent with her assertions now that she had only signed documents for the opening of bank accounts and so on.

20.  For these reasons, this court rejects the ground of non est factum.

21.  Regarding undue influence, this court should first remind itself of the law.

22.  In On Sky Enterprise (HK) Ltd v Lanco International Holdings Ltd unrep, HCA 529/2010, 8 December 2016 at [40]–[42], this court said,

“40.  In [Li Sau Ying v Bank of China (2004) 7 HKCFAR 579], Lord Scott observed at [28]–[30]:

“28.  This is not a case in which the relationship between the appellant and Mr Li was one of the well established categories of relationship where the relationship as such would lead the court to presume that undue influence had been exerted unless evidence was adduced proving the contrary...It was not, using Slade LJ’s categorisation, a Class 2A case. Both the Deputy Judge and Le Pichon JA asked themselves whether the case was a Class 2B case, ie a case in which on its particular facts a relationship not falling within the Class 2A category had been shown to have become such as to justify the court in applying the same presumption ...

29.  Lord Browne‑Wilkinson’s approach in Barclays Bank Plc v O’Brien was broadly endorsed and built upon by the House of Lords in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 but the use of the expression ‘presumed undue influence’ and, in particular, its use in connection with Class 2B cases was deprecated... Lord Hobhouse of Woodborough said, at para 98 that the Class 2A and Class 2B categorisation derived from the Aboody case had been ‘the source of much of the confusion which has ensued’ and, at para 105, that ‘the language of presumption is likely to confuse rather than assist’. He said that:

‘... If at the end of the trial the wife succeeds on the issue of undue influence, it will be because that is the right conclusion of fact on the state of the evidence at the end of the trial, not because of some artificial legal presumption that there must have been undue influence.’ (para 106)

Lord Hobhouse concluded that:

‘... the so‑called Class 2(B) presumption should not be adopted. It is not a useful forensic tool.’ (para 107)

And I expressed similar views at para 161:

‘For my part, I doubt the utility of the Class 2B classification ... The presumption in Class 2B cases, ... is doing no more than recognising that evidence of the relationship between the dominant and subservient parties, coupled with whatever other evidence is for the time being available, may be sufficient to justify a finding of undue influence on the balance of probabilities ...’

30.  The strong message from Royal Bank of Scotland plc v Etridge therefore is that, particularly in Class 2B cases, concentration on a so‑called presumption of undue influence is likely to detract from the real issue, namely, whether the evidence justifies a conclusion that the impugned transaction was procured by undue influence.” (emphasis added)

41.  In Bank of China v Wong King Sing[2002] 1 HKLRD 358 at [34], Recorder Ma SC (as he then was) said:

“34.  I should preface the discussion of this defence with the observation that, as with all aspects of the law, one has to apply a large degree of common sense to the matter...it has to be borne in mind that 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 the victimization 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 ...” (emphasis added)

42.  The real issue is thus whether or not the evidence as a whole justifies a conclusion that the Shius’ execution of the Loan Documents had been procured by Chan’s undue influence or, looking at it from another angle, whether the Shius consented to the execution of the Loan Documents with full knowledge of the consequences in so doing.”

23.  In the present case, Mr Cheung, based on the Debtor’s own evidence in Leung 4, submitted that:

a.  The Bank knew about the husband / wife relationship between Law and the Debtor.

b.  The Debtor had reposed trust and confidence in her husband.  In particular, trust and confidence, as well as ascendency and dominance by Law over the Debtor, can be seen in the incident relating to the re‑mortgage of the Debtor’s Kingswood Property.  In brief, what happened was this.  The property was purchased in the Debtor’s sole name and she was solely responsible for the monthly mortgage payments to Citibank.  In late 2012 or early 2013, Law persuaded the Debtor to mortgage the property to DBS Bank to enable him to obtain a new loan for his business in return for Law paying the remaining mortgage instalments.  The Debtor said, although divorced, her trust and confidence in Law remained and eventually agreed to do so.

c.  The subject transaction was manifestly disadvantageous to the Debtor as she had no participation or financial interest in Law’s business.

d.  As the case involved a wife acting as guarantor for her husband’s debts, and the subject transaction was manifestly disadvantageous to the Debtor, the Bank was put on inquiry.

e.  The Bank did nothing near the reasonable steps required under the law.

i. No separate and private meeting was arranged between the Bank and the Debtor in the absence of Law.

ii. No translation of the documents in Portuguese was provided.  Nor did the staff of the Bank or the public notary explain the contents of, including the risks and the extent of liability, the documents to the Debtor before signing. 

iii. The Debtor was not asked to seek independent legal advice.

24.  This court rejects the defence of undue influence.  The reasons are these.

25.  As explained earlier, the bare assertions that the Debtor thought the documents she had signed over a period of almost five years were only for the purposes of opening a bank account and appointing her as Law’s “authorised person” or confirming amendments to the Bank’s terms and conditions were not believable.  Further, the evidence adduced by the Debtor is far from sufficiently precise in establishing that on each of the eight occasions when she signed the Agreements in Macau before a public notary, she was under the alleged undue influence of Law.  In Leung 4, the Debtor said a great deal about her 1^st visit to Macau in 2004 with Law, but relatively little on each of her seven subsequent visits.  There was very little evidence to explain why, in view of the HK dollar figures on the front page and of the fact that she had to attend before a public notary, she thought she was merely signing documents to confirm her agreement to the revisions to the Bank’s terms and conditions, other than Law said so.

26.  In this court’s view, the Debtor has failed to establish that she was the victim of Law’s treachery or that she had been “forced, tricked or misled” by Law into signing the Agreements on the eight occasions in question.  If the Debtor cannot establish that she had been “victimised” by Law, then the most critical element of the defence is missing ie she was under the undue influence on the part of Law.  The Debtor may or may not have been under the influence of Law, but there was nothing undue.  Putting it in another way, this court is not satisfied the Debtor has established by believable evidence that there was no informed consent on her part when she signed the Agreements.

27.  Lastly, it seems to this court Mr Cheung’s reliance on the Kingswood Property incident in 2012 / 2013 is misconceived.  First and foremost, what the Debtor did at the behest of Law in 2012 / 2013 sheds very little light on whether she was under Law’s undue influence between 2004 and 2009.  Further, while the re‑financing arrangement whereby the Debtor “transferred” the mortgage of the property from Citibank to DBS Bank may or may not objectively speaking be manifestly disadvantageous to her, subjectively, the Debtor herself thought it was quite a good deal.  In Leung 4 at paragraph 33, she said:

“If Mr Law agreed to repay the remaining mortgage of about $900,000 for me, and also pay me $30,000 as maintenance and a rent of $8,000 every month on time, that would be quite advantageous to me. Therefore, I accepted his suggestion and mortgaged the Kingswood Property to DBS for re‑financing.”

28.  For the above reasons, this court rejects the defence of undue influence.

Disposition and costs order nisi

29.  In these circumstances, this court is satisfied that the Bank is entitled to a bankruptcy order against the Debtor and hereby grants the usual bankruptcy order against Madam Leung Lai Hing Cindy and, on a nisi basis, with costs to the Bank.  Madam Leung’s own costs will be taxed in accordance with Legal Aid Regulations.