INDIAN OVERSEAS BANK v. VEE PEE GLOBAL LTD AND OTHERS

HCMP 2114/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2114 OF 2011

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J U D G M E N T

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1. In this action the plaintiff bank is seeking to recover from the 1^st defendant company, money advanced to it by the plaintiff by way of banking facilities, and from the 2^nd and 3^rd defendants, as individuals, the same sum which was charged to a property by those defendants as mortgagors, in favour of the plaintiff.  Alternatively it seeks vacant possession of the charged property.

2. The 2^nd and 3^rd defendants are husband and wife.  The 2^nd defendant also happened to be a shareholder and director of the 1^st defendant company until April 2010.  The 1^st defendant has taken no part in this trial.  The plaintiff already has a judgment against it and there has been no appeal.

3. The property so charged is on the 17^th floor of Hart House, 12‑14 Hart Avenue, Kowloon, Hong Kong and is owned by the 2^nd and 3^rd defendants.

THE PLAINTIFF’S CLAIM

4. A sanction letter granted to the 1^st defendant company credit facilities at the bank up to a maximum of HK$25 million in 2006.

5. This facility was to be secured, together with a cash deposit collateral, by the mortgage of the property identified earlier to secure in part the sum of HK$2.786 million (being 70% of the value of HK$3.98 million at 4 April 2007) and by personal guarantees of the 2^nd defendant, and of a Mr Vinod Kumar Sharma, both being directors of the 1^st defendant.

6. The sum of HK$2.786 million was to be released from the cash collateral to enable the 2^nd and 3^rd defendants to purchase the Hart House property.  It seems that the bank in fact released a larger amount, HK$3.6 million for the purposes of completion.  Nothing turns on this apparent discrepancy.

The charge on the property owned by the 2^nd and 3^rd defendants

7. The mortgage charge is dated 12 April 2007.  The parties to it are the plaintiff bank as lender, the 1^st defendant as borrower, and the 2^nd and 3^rd defendants as mortgagors of the property at Hart House, 12‑14 Hart Avenue, Kowloon of which they were the joint owners.

8. The 2^nd and 3^rd defendants covenanted to pay, on demand, all:

“sums of money which at the date of such demand may be outstanding according to the books of the lender …. in respect of any account whatsoever between the borrower and the lender [ie the 1^st defendant and the plaintiff].”

It was therefore an all‑monies mortgage.

9. It is signed on behalf of the 1^st defendant company by the 2^nd defendant, and by him and his wife, the 3^rd defendant each on his/her own behalf.  Liability under the charge was joint and several.

THE DEFENCES IN ESSENCE

10. Mr Lalwani says that he entered into the arrangement, including the mortgage, on the basis of representations by the bank to the effect that they would not enforce the charge, that it was an informal arrangement rather than a strict legal arrangement, and that he would be able to redeem the property simply by adding HK$4 million to the cash deposit collateral.  Secondly, that neither the bank nor Wilkinson & Grist explained the risk and legal effect of the charge on the property.  Finally, that the bank promised not to proceed with the action (which one he refers to is not entirely clear) whilst he was in India and would remain open to negotiations.

11. Mrs Lalwani says that Wilkinson & Grist neglected her interests as a potentially unduly influenced wife, failed to explain any of the documents she was told to sign, and ignored entirely the fact that she could not write, read, understand or speak English.  Her alternative or additional defence is the simple one of undue influence on the part of her husband which caused her, unquestioningly, to comply with all that he asked of her as a consequence of which she put her own interests in jeopardy.  As I will repeat later she has taken no proceedings against her husband to encapsulate this claim on her part. 

THE EARLIER PROCEEDINGS

12. In 2011 the bank commenced proceedings against the 1^st and 2^nd defendants and a third defendant (the 2^nd defendant in that action), a Mr Vinod Kumar Sharma, who was the other guarantor of the credit limits due to the bank under the original credit sanction arrangement, and another director of the defendant company.

13. Final judgment was obtained against the company and the guarantors on 21 September 2011 in the following amounts:

      US$564,278.94;

      Euros €7,546.58; and

      HK$4,637,113.77, plus interest and fixed costs.

14. As far as I am aware that judgment remains unsatisfied.

15. To that action no defendant had filed a defence.

THE FORMALITIES OF THE CHARGE

16. The property concerned was to be purchased by the 2^nd and 3^rd defendants, some of the purchase money for completion being advanced by the plaintiff bank out of a collateral cash security which it held to secure the 1^st defendant’s liabilities to the bank.

17. The solicitors, Wilkinson & Grist, acted on the plaintiff bank’s instructions to prepare the necessary documents and contact the defendants.  They had contact with the solicitors Eric Yu & Company who acted for the 2^nd and 3^rd defendants in their purchase of the property charged.

18. Prior to completion of the purchase of that property on 12 April 2007, Wilkinson & Grist sent to the defendants the mortgage documents including what is described as a Warning Notice to Mortgagor, dated 10 April 2007.  That notice is self‑explanatory.  Both the 2^nd and 3^rd defendants signed that document and dated it 11 April 2007.  The paragraph immediately preceding their signatures contains, inter alia, the following sentence:

“We acknowledge that you have recommended that we should instruct our own solicitor and financial adviser to give us advice on the Mortgage and the Financial Information.”

19. The next sentence is not struck out so it leaves open whether or not the defendants in fact sought legal advice but it was clearly available to them easily because they had solicitors acting for them in the purchase of the property to be charged.  Completion of their purchase of that property was fixed for 12 April 2007 so the mortgage arrangements which involved the advance by the bank of HK$3.6 million to enable the completion to take place (for some reason in excess of the 70% advance agreed) needed to be put in place beforehand though it is obvious that the timescale was short.

20. All the essential formalities were completed in time for the mortgage to be effective from 12 April 2007 to tie in with the completion of the purchase of the Hart House property.

THE BANK’S CREDIT FACILITIES TO THE 1^ST AND 2^ND DEFENDANTS

Prior to April 2007

21. It is convenient to consider the position from about December 2003 although the relationship between the bank and its customers had existed for some years before then.  The basic reliable record is Exhibit P1 produced by Mr Krishnan in the course of the trial.

22. As at 9 December 2003 the facility granted had a maximum of HK$20 million. This had a collateral security of HK$2 million in cash and a property owned by the 2^nd defendant (Mr Lalwani), known as Hilton Tower on which there was a charge in the sum of HK$2.45 million, being about 70% of its market value or purchase price.  It does not matter which.

23. The bank also obtained personal guarantees from the two directors of the 1^st defendant company, the first being Mr Lalwani and the second Mr Vinod Sharma who is not a party to this action.

24. By 11 August 2005 — nearly two years later — there had been a change in respect of the mortgage charge on the property, though the cash deposit remained unchanged.  The amount of the charge had increased to HK$3.71 million (again being 70% of the market value which had been revised to HK$5.3 million).  In some way one or more of the defendants had received another advance this time of HK$1.26 million.

25. By 18 May 2006 the property had been sold and the cash deposit raised to HK$5.71 million which means that the mortgage had been discharged and the sum released returned to the cash collateral.  The limit of credit facilities was raised to HK$25 million.  As before the personal guarantees of the 2^nd defendant and his co‑director, Mr Vinod Sharma, remained in force in respect of the overall credit facilities to the 1^st defendant company. That cash collateral had been raised to HK$6 million by 24 May, a week later.  The personal guarantees must have remained in place.

From 4 April 2007

26. The 2^nd defendant Mr Lalwani wanted to buy a property on the 17^th Floor of Hart House, Hart Avenue, Tsim Sha Tsui, Kowloon, referred to as the Hart House property hereafter.  In order to effect this he sought the release of some of the cash deposit.  The outcome was that the bank agreed to release HK$2.786 million and took a charge upon the property, as a mortgage.  The property was bought in the name of both Mr and Mrs Lalwani (the 3^rd defendant in this action).  The consequence was that the cash deposit would be reduced to HK$3.214 million and Mrs Lalwani as joint owner of the Hart House property became joint mortgagor with the same liabilities as her husband.  The mechanics of that transaction now fall to be considered.

THE BANK’S INSTRUCTIONS AND ARRANGEMENTS

27. The transaction was precipitated by a request in writing (16 March 2007) from the 1^st defendant company through its director, the 2^nd defendant.

28. It said that it had purchased the Hart House property (in fact it had entered into a sale and purchase agreement) which had a valuation of HK$4.8 million, probably an over‑valuation as it turned out:

“At this juncture we would like to make a request … Kindly allow us to withdraw the above fixed deposit with your bank …”

then standing at HK$6 million,

“… and keep this new purchased property as collateral against our trade facilities with you.” [my emphasis]

29. I have underlined that phrase which is significant because it clearly accords with the basis of the bank’s subsequent written agreement.  It was collateral for the bank’s facilities in general up to the credit limit then of HK$25 million in total and the 2^nd defendant was accepting the bank’s requirement in this regard.

30. It went on:

“Our solicitor M/S Eric Yu & Company will contact you on this matter. Kindly issue cheque to our solicitor as per your earliest convenience [sic] for total FD [fixed deposit?] amount including the accumulated interest. The completion date for sale and purchase deed of property is 4^th April 2007.”

31. The completion date was eventually 12 April 2007 but it is important to note that solicitors acting for the 1^st defendant company and directors must have had some contact with the bank in connection with the transaction although it is not known what communications passed between them.  However at all times the defendants had access to their own solicitors for advice, explanation and guidance and Wilkinson & Grist were in contact with those solicitors who must have been aware of the nature of the bank’s involvement from late March.

32. The formal instructions from the plaintiff bank to Wilkinson & Grist were sent by letter of 4 April 2007 addressed to the partner Ms Teresa Wong.  A telephone conversation at least must have preceded this formal instruction because Wilkinson & Grist had written to the defendants’ solicitors on 30 March (referring “inter alia” to an earlier letter of 29 March 2007 from them) concerning certain requisitions in relation to title.  At that stage it was mentioned that completion was due to take place on 10 April 2007.

33. The instructions from the plaintiff bank pointed out that the 1^st defendant and its directors enjoyed credit limits of HK$25 million with a cash deposit as security.  A portion of the cash deposit (HK$2.786 million) was to be released and replaced by a mortgage on the Hart House property in the names of the 2^nd defendant and his wife (the 3^rd defendant). The purchase price was HK$3.98 million.  Wilkinson & Grist were asked to complete the mortgage facilities (to a value of HK$25 million, the credit limit) and Eric Yu were identified as the purchasers’/mortgagors’ solicitors (with whom Wilkinson & Grist had already been in touch).

34. On the same date (4 April 2007) the bank wrote to Vee Pee Global (the 1^st defendant company) agreeing to the release of the said sum with the property to be held by the bank as a replacement for that release of cash deposit.  Amongst the conditions set out was the revaluation of the property at intervals and in the event of the value of the property reducing, additional collateral would have to be provided.

35. The existing credit limits of HK$25 million were to be guaranteed by both directors and also by Mrs Lalwani, who was to be the joint owner of the Hart House property.  A guarantee by Mrs Lalwani was not pursued.

36. There is of that date (4 April 2014) a personal financial statement signed by Mrs Lalwani in which is disclosed that, apart from her interest in the home, then at Monte Carlton, Tai Po Road (a property different from the two properties which feature in this action), she had HK$1 million upwards in her bank and stocks and shares worth 2.5 million rupees, according to the evidence from Mr Lalwani, who was instrumental in getting his wife to sign this.  The statement is however incomplete in essential detail.

THE ACTIONS OF WILKINSON & GRIST

37. The firm, though instructed by the bank, had a dual role which it readily acknowledged.  It also acted for the mortgagors in the transaction but of course had to obtain their instructions to that effect.  The mortgagors were husband and wife which required singular care to ensure that no conflict of interest arose.

38. It is well‑known that solicitors acting for both parties to a transaction have to be particularly careful and follow strict guidelines.  Many lawyers remain very sceptical as to whether there can ever be a situation in which both parties can be guaranteed an exclusive independent service.  It will often depend on how readily the solicitor or firm concerned can recognise a conflict of interest.  As a result doubts remain as to whether it should remain an approved practice however strong the safeguards are deemed to be. 

39. An odd feature of this case is that the mortgagors had their own solicitors acting for them in the purchase of the Hart House property.  The bank and Wilkinson & Grist knew this and the latter had direct contact with the solicitors concerned, Eric Yu & Co.  The latter were ideally positioned to consider all the intricacies and implications of the mortgage to the bank and yet it appears that the mortgagors did not avail themselves of their services and in this trial they have only a “walk‑on” part with none of their material documents being exhibited.  Eric Yu’s file has not been part of the extensive documentation in the case and no evidence has been obtained from them by any party.  Following instruction from the bank and clarification of it, Wilkinson & Grist e‑mailed Mr Lalwani, the 1^st defendant company and the prospective mortgagors on 10 April 2007.  The handling solicitor was Ms Rosalind Yung to whom the matter had been delegated by a partner Ms Teresa Wong.

40. That letter is important.  It sent as attachments a number of documents for all the defendants including the mortgage deed, the Warning Notice to the mortgagors, the Confirmation by the Mortgagors, Directors’ Board Minutes and Written Resolutions of the company Vee Pee Global. 

41. They were asked to check that the documents were in order and to make an appointment in order for the documents to be executed, as soon as possible, as completion was scheduled for 12 April.  Although some argument was raised about the company’s documents it was not material and slipped away.

42. There is some conflict over who actually arranged the meeting date and time.  It may have been the bank or Mr Lalwani or a combination of both, but it was fixed for 11 April in the afternoon at the offices of Wilkinson & Grist.  At that meeting both Mr Lalwani and his wife, Mrs Maya Lalwani, signed a number of documents in circumstances which I need to review shortly but the contents need to be set out to illustrate the position clearly explained to both defendants in writing.

Notice to Borrower [1^st defendant, represented by the 2nd defendant, as director]

43. This identified Wilkinson & Grist as acting for the bank.  In heavier print it recommended that “you should seek independent legal advice before you execute the mortgage.”  It clearly stated that the borrower (the company ‘VPG’) should review the mortgage carefully “to ensure your full understanding before you execute the mortgage.” “If there is anything you do not understand or you want advice about the mortgage or the consequences of executing it, then you should take independent legal advice before executing the mortgage.”

44. It is worth repeating that Eric Yu & Co were available to any or all of the defendants for such independent legal advice.

45. The mortgage included an undertaking to repay all the moneys owed to the lender. By executing the mortgage, liability was incurred:

“… for all indebtedness and liabilities… owing by any one or more of the borrower and mortgages, including but not limited to:

(a) all actual liabilities …

(b) amounts outstanding under the facilities granted to you or any one or more of the borrowers or the mortgagors.

…

3.  Your liabilities under the mortgage are unlimited and are not limited to the value of the property.”

46. The liability for all indebtedness of the borrower or mortgagors is joint and several.

47. Mr Lalwani signed that on 11 April on behalf of Vee Pee Global Ltd.  Having understood the contents of this document and others which he signed, he well knew the extent of the liabilities incurred and his evidence in this case is entirely consistent with that.

The Warning Notice to mortgagor [2^nd and 3^rd defendants, husband and wife]

48. This was also dated 10 April 2014.  It repeated essentially the terms and liabilities in the Notice which I have just considered and in particular the liability for all amounts outstanding under the facilities granted to the borrower Vee Pee Global and as if to make doubly clear:

“If you decide to go on with the transaction and sign and execute the mortgage, your liabilities [under it] are unlimited and are not limited to the value of the property…” [my underlining]

49. In heavy capital print is stated:

“YOU ARE RECOMMENDED TO INSTRUCT YOUR OWN SOLICITOR … to protect your interest and give you independent legal advice.”

50. Later is stated:

“You may also instruct our firm to advise you in this transaction. But if a conflict arises … we will not be able to protect your interests and you will then have to instruct your own solicitor.”

51. Finally of particular importance is stated:

“Although our firm will be providing you with the financial information of the Borrower … as provided by the lender. YOU ARE STRONGLY ADVISED ...”

note capital letters again,

“… to engage your own financial adviser to give you advice on such Financial Information before signing …”

52. Both mortgagors signed this on 11 April.  The position vis‑à‑vis Mr Lalwani was clear cut.  Only Mrs Lalwani’s position needs to be examined at this stage in any detail.

The evidence of Carmen Ng

53. In April 2009 she was a trainee solicitor with Wilkinson & Grist coming to the end of her traineeship.  She was an impressive witness, balanced, thoughtful, clear and I find efficient.  She was delegated by Ms Rosalind Fung to conduct the meeting with Mr and Mrs Lalwani at which the documents, and in particular the mortgage were to be signed by them.  I believe her when she said that she conducted a separate session with Ms Lalwani when she went through and explained the contents of the documents, in particular the effect of the liabilities assumed under them.

54. I accept her evidence when she said that she was aware of the guidelines from the Law Society of Hong Kong in relation to security transactions with a potentially unduly influenced party.  That contained at paragraph 35, the “core minimum” advice to be given, is in line with the judgment of Lord Nicholls in Royal Bank of Scotland v Etridge (No 2) [2001] 3 WLR 1021 at page 807‑8, paragraphs 64 to 66:

“ 64 I turn to consider the scope of the responsibilities of a solicitor who is advising the wife … what has he been retained to do? … In the type of case now under consideration the relevant retainer stems from the bank’s concern to receive confirmation from the solicitor that, in short, the solicitor has brought home to the wife the risks involved in the proposed transaction. As a first step the solicitor will need to explain to the wife the purpose for which he has become involved at all. He should explain that should it ever become necessary, the bank will rely upon his involvement to counter any suggestion that the wife was overborne by her husband or that she did not properly understand the implications of the transaction. The solicitor will need to obtain confirmation from the wife that she wishes him to act for her in the matter and to advise her on the legal and practical implications of the proposed transaction.

65 When an instruction to this effect is forthcoming, the content of the advice required from a solicitor before giving the confirmation sought by the bank will, inevitably, depend upon the circumstances of the case. Typically, the advice a solicitor can be expected to give should cover the following matters as the core minimum. (I) He will need to explain the nature of the documents and the practical consequences these will have for the wife if she signs them. She could lose her home if her husband’s business does not prosper. Her home may be her only substantial asset, as well as the family’s home. She could be made bankrupt. (2) He will need to point out the seriousness of the risks involved. The wife should be told the purpose of the proposed new facility, the amount and principal terms of the new facility, and that the bank might increase the amount of the facility, or change its terms, or grant a new facility, without reference to her. She should be told the amount of her liability under her guarantee. The solicitor should discuss the wife’s financial means, including her understanding of the value of the property being charged. The solicitor should discuss whether the wife or her husband has any other assets out of which repayment could be made if the husband’s business should fail. These matters are relevant to the seriousness of the risks involved. (3) The solicitor will need to state clearly that the wife has a choice. The decision is hers and hers alone. Explanation of the choice facing the wife will call for some discussion of the present financial position, including the amount of the husband’s present indebtedness, and the amount of his current overdraft facility. (4) The solicitor should check whether the wife wishes to proceed. She should be asked whether she is content that the solicitor should write to the bank confirming he has explained to her the nature of the documents and the practical implications they may have for her, or whether, for instance, she would prefer him to negotiate with the bank on the terms of the transaction. Matters for negotiation could include the sequence in which the various securities will be called upon or a specific or lower limit to her liabilities. The solicitor should not give any confirmation to the bank without the wife’s authority.

 66 The solicitor’s discussion with the wife should take place at a face-to-face meeting, in the absence of the husband.  It goes without saying that the solicitor’s explanations should be couched in suitably non-technical language.  It also goes without saying that the solicitor’s task is an important one.  It is not a formality.”

55. I am satisfied that the Warning Notice, Confirmation of Mortgagor and Undertaking contain all the essential elements of the “core minimum” advice to be given to the mortgagors.  It is appropriate to consider Ms Ng’s evidence in relation to each mortgagor because of the need for special care in respect of the wife as co‑mortgagor with her husband and the differences in the defences advanced by both of them.

The husband (Prem Khemshand Lalwaini)

56. There is no doubt about Mr Lalwani’s command of and understanding of the English language in written or spoken form.  He does not dispute that he understood all the documents which he signed, freely, and the liabilities that they imposed upon him.  Although he disputes many of the circumstances surrounding the meeting at the offices of Wilkinson & Grist and the contents of that meeting, they are relevant only to his wife’s case.

57. He does not suggest that the tight timescale created any problems for him, or that any aspect of any document was not fully explained to him although he says that matters were greatly rushed.  He says he was told that he would have to sign and then an explanation of the documents would be given.  In any event he had available to him advice, if he wanted it, from his solicitors in the purchase and completion of the Hart House property.  Whether he did in fact avail himself of such advice is not known conclusively.  On this topic Mr Lalwani was himself somewhat ambivalent.  I suspect that his minor quibbles on this aspect have been raised to try and lend some credence to his wife’s case.

58. He well knew all the safeguards which the bank was creating to protect its credit facilities before he had any contact with Wilkinson & Grist.  The bank’s letter of 4 April 2007 to Vee Pee Global was clear to the effect that the mortgage of the property was just part of the collateral security for the credit facilities then limited to HK$25 million.

59. He was a business man of some experience and this was not the first time his properties had been mortgaged to a bank.  The Hilton Towers property had been dealt with similarly as collateral security for credit facilities of his business.  He had also had the benefit of the Notice to Borrower addressed to Vee Pee Global Ltd of which he was the director with longstanding contact with the plaintiff bank, in which all liabilities to be secured were set out.

60. In the course of his evidence he raised an empty argument or complaint about the provision concerning the minimum one day notice required by the mortgagors in the Warning Notice.  In fact this, with other documents, was sent by e‑mail to Mr Lalwani using an e‑mail address which he clearly used, on his own evidence, and which he had in effect given to the bank.  He received those documents the next morning at the latest.  He knew there was a tight timescale.  Completion date had been moved twice so his own solicitors, Eric Yu & Co must have been aware of the situation.  One can sensibly infer that these changes in date had been made to accommodate the need to complete all the mortgage facilities in time for the 12 April 2007 completion date.

61. On this first aspect of his defence, I am satisfied that there is no substance in it.  I do not consider that he has been truthful.  As in so much of his evidence he seemed incapable of or unwilling to answer questions directly without going into a narrative of irrelevancies.  He knew throughout what was involved and although I am completely satisfied that Ms Carmen Ng explained everything to him in accordance with the guidelines and good professional practice, he was not a man who was in any doubt about what was involved.  He also knew he has his own solicitors to assist him if there was any aspect on which he needed advice.

The evidence in relation to Mrs Lalwani

62. I have already stated that I was impressed by Ms Carmen Ng and accept that she took great care in explaining all the documents and their implications which are for the most part express obligations and liabilities.

63. It was clear to me and to all, confirmed by the lady interpreter, that on at least three occasions she had answered questions put by counsel, in English for interpretation, before any interpretation was commenced.  Her answers, translated from Hindi into English, showed that she fully understood English.  I have to conclude that her guard or mask had slipped because she had clearly conveyed through her counsel that she did not speak or understand English save for a few words.

64. There was evidence from Jeetender Sharma, which I accept that Mrs Lalwani used English when telephoning her husband’s office, and when speaking to her Filipina maid.  She also had two sons, as well as her husband, who spoke English at a good level, and on many occasions, since she has been living in Hong Kong, she has been shopping, as a consequence of which I am satisfied that she has a far greater understanding and frequent use of English on a daily basis than she would have us believe. 

65. When much younger and living in India she attended at least two schools at which English was taught and although I am sure that she is more comfortable when using Hindi (or Shindi), she has, at the very least, a good working knowledge of the English language.

66. She is an intelligent lady and capable of indicating her understanding or lack of understanding of what is explained to her for her own benefit.  She had been taken to the offices of Wilkinson & Grist by her husband who had explained to her, at least in general terms, that she would be required to sign documents connected with the purchase of the Hart House property.

67. When Ms Ng went through the documents which Mrs Lalwani was required to sign, I am satisfied that she understood them in general terms, and indicated sufficiently that she understood all the implications and liabilities involved.  Ms Ng certainly followed the guidelines and bore in mind throughout that Mrs Lalwani’s interests received the care and detail that was required.

68. Whether Mrs Lalwani in fact understood in detail all that was involved in affecting her interest in the property is less than certain.  It is likely that her husband would not have told her, though, because I found him such an unconvincing witness, I could not be entirely sure even of that.  Even though she did in general understand the liabilities which she was incurring, it is more than likely that she would have followed her husband’s instructions.

69. It is difficult to know what else Ms Ng could have done to satisfy herself that there was a genuine comprehension on Mrs Lalwani’s part though I am satisfied that had there been any hint of a lack of communication or comprehension by Mrs Lalwani, Ms Ng would have detected this and taken the precaution of obtaining the services of an interpreter.  It is clear that neither Mr Lalwani nor his wife made any suggestion that the services of such were required.  Time was of course limited — everyone involved knew that completion of the purchase of Hart House was fixed for 12 April 2007, the day after the meeting at Wilkinson & Grist’s premises where all the documents relating to the mortgage were signed.  One other factor would have operated on the minds of the staff of Wilkinson & Grist and that is the existence of solicitors acting for Mr and Mrs Lalwani.  The two firms of solicitors had been in contact with each other, the solicitors for the Lalwanis having been involved in the purchase of the property for several months.  Had there been any apparent problem in Mrs Lalwani’s command of the England language one would have expected this to be communicated to Wilkinson & Grist.  It is also important to note that the Sale and Purchase Agreement signed by Mrs Lalwani in the offices of Eric Yu & Co had provided for the services of an interpreter for her, if required.  The provision on the signature page beneath Mrs Lalwani’s signature, “Interpreted by …” is crossed through. Clearly that provision was not required.

70. Although the Law Society’s Guidelines are clear and comprehensive enough I think it would be more helpful, if, instead of relying on a simple reference to the Etridge case (see paragraph 34 of my judgment), it quoted verbatim paragraph 65 of Lord Nicholls’s judgment and ensured that the documents, Confirmation of Mortgage and Warning to Mortgagor, in particular were drafted so as comprehensively, to reflect the full force of that paragraph of his judgment.

71. For someone who does not have English as his/her native language it is more often than not far easier to understand the spoken or written word than it is to speak or write English and so it can be a difficult exercise to ensure that such a person fully understands what he or she is about to sign.

72. More difficulty arises potentially when a solicitor acts for both parties, a practice with which many lawyers are unhappy because of the potential risks of conflict and the safeguards to be employed.  I am satisfied that in this instance Wilkinson & Grist were in no way compromised because of the careful steps taken by their staff and the fact that Eric Yu & Co Ltd were the solicitors to the Lalwani family in the purchase of the property. However it remains a problematic practice especially where the population reflects a range of native languages with English as a second language.

73. The handling solicitor for Wilkinson & Grist, Ms Rosalind Yung, was only minimally involved.  I accept her evidence to the extent that I am satisfied that given these events are now seven years old she has had to rely upon her memory as to her practice.  She was aware of the guidelines, and the need to apply them, and there was no omission or failing on her part which was material.  It was reasonable for her to delegate the practical exercise to Ms Carmen Ng.

74. Although the letter of confirmation from Wilkinson & Grist to the bank following the completion of the documents at their offices by the 2^nd & 3^rd defendants is somewhat deficient in detail, and falls short of the content set out in the Law Society’s Guidelines it does not and cannot invalidate my findings in respect of the actions of and services provided by Wilkinson & Grist to the defendants.  It goes without saying however that in future transactions a compliant letter should be drafted and used as a matter of course.  It can be an effective additional check on the procedure to be followed.  Its shortcomings in this case, are, I am satisfied, of no significance.

THE DEFENCE OF THE 2^nd DEFENDANT

75. The director of Vee Pee Global Limited had no defence available to him as far as the completion of all the documents is concerned because I had little difficulty in concluding that he was completely aware of all the circumstances well before the meeting at the offices of Wilkinson & Grist. At that meeting he signed all the documents.  He was asked to by Ms Carmen Ng and had had the benefit of a full explanation from her.

76. However, he relies essentially upon what he says was an oral agreement or assurance by managers of the plaintiff bank that it would not enforce the mortgage agreement in its full terms against the mortgagors, but would allow him to redeem the mortgage and recover the deeds of the property upon paying HK$4 million to increase the cash collateral.

77. It is necessary as a first step to see how this is pleaded in his defence.  At an early stage there was some sparring between counsel for the plaintiff and for the 1^st defendant regarding some possible conflicts between part of the pleaded defence and the latter counsel’s written submissions which might have encouraged an application to amend the defence.  However as anticipated, and as the evidence turned out, no significant issue arose.  The defence is based initially on alleged misrepresentations.  Paragraph 5 says that Mr S Pahwa said that, although Mr Lalwani was required to sign a mortgage, “this was just a routine to meet the plaintiff’s procedure in granting facilities.” Of course it was routine, an essential requirement for the facility sought, that is, a release of some of the cash collateral to enable the purchase of Hart House to proceed.  This contact with Mr Pahwa was said to be in early April 2007.

78. Mr Lalwani had signed a sale and purchase agreement in respect of the property in early November 2006.  He had of course in March 2004 been through the same procedure as mortgagor, with Wilkinson & Grist acting for the bank, in respect of the Hilton Towers property, in order to secure repayment of general banking facilities, so he well knew what the routine was.

79. Moreover on 16 March 2007 he, on behalf of Vee Pee Global, had written to the bank in the following terms:

“At this juncture we would like to make a request to your bank, kindly allow us to withdraw the above fixed deposit with your bank …”

this is the collateral cash deposit of, at that time, HK$6 million:

“ … and keep this new purchased property as collateral against our trade facilities with you.”

80. There is no dispute that the “trade facilities” meant the general credit facilities then standing at HK$25 million.  He clearly indicated what the formal or routine arrangement was.  He also stated that “our solicitor M/s Eric Yu & Company will contact you on this matter.”  Wilkinson & Grist were, before long, in contact with this firm.

81. That letter led to the bank’s letter of 4 April 2007 which set out unequivocally the bank’s terms: 70% of the valuation of the property would be released from the cash deposit collateral; the existing credit limits of HK$25 million were to be guaranteed by Mr Lalwani, Mr Vinod Sharma, as directors of Vee Pee Global Limited, and by Mrs Lalwani, the co‑mortgagor.  In the event a guarantee was not taken from her.  The bank’s letter of terms was signed by all three individuals and by Mr Lalwani on behalf of the company, as their acceptance of them.

82. The second aspect of the allegation of misrepresentation was that Mr Pahwa said, words to the effect, the plaintiff “would not enforce the charge” and did not warn or inform the 2^nd defendant (Mr Lalwani) of the associated risk or the legal effect of the mortgage.  It is perhaps appropriate at this stage to say that I regard this allegation and Mr Lalwani’s evidence on it, which was minimal, as nonsense.  His previous experience of mortgaging his property to secure bank facilities, and the correspondence to which I have recently referred, quite apart from the fact that he had solicitors acting for him at that time, and in the recent past, make such suggestion untenable.  His counsel has wisely not pursued this contention.

83. The additional aspect of this is the averment that Mr Pahwa said that if Mr Lalwani wanted to release the Hart House property from the charge he could do so at any time [my underlining] by depositing HK$4 million and that Mr Krishnan gave the same assurance at or about the same time, April 2007.  The further averment that a Mr Dubey of the bank was told by Mr Lalwani of this “arrangement” is easily dismissed.  Mr Dubey had ceased to be employed in Hong Kong by the bank in 2004 and noticeably Mr Lalwani does not allege in his pleading that Mr Dubey agreed to the “arrangement”.  In his evidence, when made aware that Mr Dubey could not have been with the bank in 2007, Mr Lalwani simply but unconvincingly, extended the range of the bank’s managerial personnel who were, according to him aware of and confirmatory of this “arrangement”.

84. There must, in addition, be some confusion in Mr Lalwani’s mind.  The figure he mentioned of HK$4 million in April 2007 was marginally in excess of the valuation of the Hart House property, at that time HK$3.98 million, and the bank’s correspondence (and its managers also made this clear in their contact with him), stipulated that the mortgage charge could be released on payment of the total proceeds of sale of the property to the bank to be added to the existing cash collateral. 

85. The 2^nd defendant knew in April 2007 that HK$4 million would have paid off the advance with a surplus.  I am satisfied that if there was any discussion based on the figure of HK$4 million, which I doubt, it indicated that he would have to pay the full proceeds of sale as further collateral to have the property released.  There was therefore no relevance of the figure to his defence at that time. 

86. Whilst in April 2007 HK$4 million was more or less the likely proceeds of sale, as time went on the value of the property increased and in late 2009 when Mr Lalwani was seeking to sell it (to his sons, on terms which are not entirely clear) the value had increased to HK$5.8 million — that was the consideration in the sale and purchase agreement of October 2009.  By the time of the second sale and purchase agreement of May 2010, about seven months later， the consideration had increased to HK$7 million, almost twice the valuation/purchase price of April 2007.  Of significance is the fact that by August 2009 the bank had reduced the maximum credit facilities to HK$16 million and by December 2009 they had been further reduced to HK$14 million.  As the bank’s witnesses indicated in evidence, the company’s financial condition was worsening hence the reduction in the credit facilities and the insistence on maintaining the stance that the full proceeds of sale would have to be deposited to increase the cash deposit collateral. That was commercial good sense.  One could not imagine the bank doing other than insisting on a proper financial transaction to safeguard its position. I have no hesitation in accepting the evidence of the bank’s witnesses and rejecting that of Mr Lalwani.

87. It is conceded that at no stage did the bank confirm any agreement concerning the release of the property from its charge upon payment of HK$4 million into the collateral cash deposit.  More importantly at no time over the relevant period did 2^nd defendant or his solicitors make any reference to it.  The notion that Mr Lalwani himself made no written reference to it because he had such a good relationship with the bank and trusted it, and the suggestion that Mr Pahwa and Mr Krishnan had said that they did not want the representation or agreement to be recorded in writing, are just not credible.  The latter would have been tantamount to these managers concealing from the bank, their employer, an improper agreement, as a special favour to a customer, which prejudiced the bank’s interests, and was in effect an abandonment of any sensible commercial practice.  Having gone to the extent of ensuring that the transaction, the obtaining of the charge on the property, was properly executed through solicitors, involving the preparation and completion of numerous documents, for the protection of the bank’s financial interests, the managers were not going to go behind that legal structure and indulge in a conspiratorial charade. Mr Lalwani’s evidence on this, as on other essential matters is nonsense.

88. The final limb of the 2^nd defendant’s defence is a contention that he was given oral assurances by Mr Jain of the bank, after the bank had commenced proceedings (which I assume to be the initial proceedings in which the bank obtained summary judgment against the company and its directors, including the 2^nd defendant under the guarantees), to the effect that he would convince his seniors to withhold court proceedings, and that Mr Lalwani should submit a settlement proposal before his own visit to India in September 2011.  As a result, Mr Lalwani said, he made no response to the legal proceedings and did not instruct solicitors.  There was then, he says, some proposal submitted in August 2011 to Mr Jain and another managerial employee of the bank to the effect that the 1^st defendant would settle any debts due.  But Mr Lalwani had ceased to be a director of the 1^st defendant company in April 2010 and even in January 2011 he was writing to the bank as if he continued to be in that position thus failing to inform the bank of that resignation.  His lame excuse for his failure was that he relied upon the company to inform the bank and so did not bother.  But he continued to sign documents on behalf of the company, in particular some bills of exchange in November 2010, over six months after his resignation.  This I find to be a clear deception on his part.

89. In passing I should comment on these bills of exchange which on the face of them had a total value of about HK$4 million. Mr Lalwani sought to raise some argument to the effect that these bills and their nominal value were of some relevance to his claim that the bank had promised to allow him to redeem the mortgage of Hart House for HK$4 million.  The bank never received the purported value of these bills so I do not need to consider them.  They are, I am satisfied, raised as a contrivance but an empty one at that.  I do not believe his explanation, convoluted as it is, about these bills.  They are irrelevant.

90. It is also noteworthy that at no time before any proceedings were issued, did his solicitors Eric Yu & Co, who acted for him over a period of at least four years, raise any of the matters concerning the alleged agreement by the bank’s managerial staff.

THE DEFENCE OF THE 3^rd DEFENDANT

91. I have already disposed of this defendant’s case in respect of her allegations concerning the signing of the mortgage and ancillary documents at the offices of Wilkinson & Grist.  Although the bank knew or ought to have known that the 3^rd defendant was Indian, of mature years and possibly with limited understanding of the English language, I am satisfied that by appointing Wilkinson & Grist, solicitors of some standing in Hong Kong, as their solicitors for the purposes of the completion of the various documents and being aware that the purchasers of the property were already represented by their own solicitors, Eric Yu & Co, they discharged any onus upon them regarding Mrs Lalwani’s interest.

92. The alternative limb of her defence is couched in this way: she was never involved or interested in her husband’s business, her husband alone was involved in the negotiation of the purchase and he asked her to accompany him on the specific occasions for the signing of the documents, and he pointed out where she should sign.  She complied with all that he asked of her.  She trusted him, had confidence in him and was induced by him as her husband, as the manager of all finances, family and business, and his influence was total. 

93. The husband’s evidence supported the wife’s case, but it was in his interest to aid her cause and therefore self-serving.  He is somewhat self-opinionated and glib and I have no doubt that he discounted any risk to his wife’s individual interest perhaps out of an overweening sense of optimism and conceit, borne out of his view of himself as a successful businessman, which itself is highly questionable, and a valued customer of the bank which he has clearly overstated.  He was valued only insofar as the relationship with the bank was of mutual benefit as would be the case with almost any bank and customer.  It was not of such value as to cause the bank to take risks and allow him a flexibility which would jeopardise their commercial interests.

94. I am sure he overbore his wife.  There may well have been a cultural or generation element in this, which caused her not to question or challenge his instructions.  At the same time I am sure she felt that there was no risk to her personal interests, or to the family’s financial fortunes.  Although, as I have found, she was fully aware of the contents of the documents signed, she was in her own mind dismissive of any thoughts of risk or potential loss. Implicit trust in her husband and a tradition of complying with his requests, especially in financial affairs, constituted the undue influence which I am satisfied he exerted over her.  His ebullience and self‑confidence contributed to that state of affairs.  Had she been of a later, more modern generation, I would have been less likely to have found that she was unduly influenced.

THE LAW

95. Although my attention has rightly been directed to a number of authorities on misrepresentation, estoppel, undue influence and “non est factum”, this trial has proved to be essentially a fact finding exercise in which the credibility of the parties is determinative.  Because of my findings in respective of the 2^nd and 3^rd defendants’ evidence, it has not become necessary for me to bring into sway the compendium of case law.

96. The bank and Wilkinson & Grist satisfied me that Mrs Lalwani freely entered into the mortgage transaction, and signed the ancillary documents with full knowledge and understanding.  She was made well aware of the contents of all the documents, and the liabilities imposed. She chose to proceed and there was no reason for the bank, or the solicitors, Wilkinson & Grist, to suspect, having taken all the steps set out, that she was not free from undue influence.  Mrs Lalwani struck me as a strong‑minded woman who would be keen to protect family interests and, although influenced by her husband, was prepared to accept that all would be well and no real disadvantage would arise.  I am sure she too had an overweening sense of her husband’s infallibility. 

97. I have taken into account the decisions of the late Carlson, DJHC in Dah Sing Bank Ltd v Sing Hai Handbags Manufactory Ltd & Others [2007] 3 HKC 515 and Bank of China (HK) Ltd v Wong King Sing & Others [2002] 1 HKC 83 (Recorder Ma SC as he then was).

98. Further I have considered the claim in respect of an unconscionable bargain.  None of the circumstances, even those put forward by the defendants, or either of them, comes anywhere near the criteria to be considered.  It simply falls away as lacking any relevant substance.  None of the terms of the mortgage transaction could be categorised as “harsh or oppressive”.  There was nothing in the terms which took it out of the realm of reasonable commercial practice.

SUMMARY

99. The plaintiff has proved its case against the 2^nd defendant. I am satisfied that there was no misrepresentation to him by any of the bank’s employees.  His own evidence indicates that no reliance could be placed upon his contention in this regard.  Furthermore there were no assurances by the bank that proceedings would be withheld.  This is a fabrication on his part.  Throughout he was well aware that the bank required the full proceeds of the sale of the property in order to increase the cash collateral and lessen the amount of default at risk.  The company’s financial worth had diminished leading to a reduction in the credit facilities.  It is not credible that the bank would withhold proceedings or delay them on the basis suggested by Mr Lalwani.  He knew that the bank required the sale proceeds, not simply the discharge of the advance, in order to protect the collateral security. There will therefore be judgment against the 2^nd defendant in terms to be finalised shortly.

100. The 3^rd defendant, by reason of the undue influence exercised over her by her husband, is entitled to have her interest in the property protected, as against her husband, but she has made no claim in this respect.  The bank did not neglect the existence of her interest in the property.  They were entitled to rely upon the documents signed by her, albeit under her husband’s instruction and direction, and they properly delegated to their solicitors the need to have full regard to her interests as the wife of the prime mover in these transactions.  Wilkinson & Grist’s staff carried out their professional duties in these respects in the property to be mortgaged.  There was no error or omission on their part.  She understood and indicated that she understood the full implications of what was explained and signed accordingly.  Her husband was the sole author of her situation.

101. The bank is entitled to judgment against the 2^nd and 3^rd defendants and to possession of the property with an order for sale.  The mortgagors (husband and wife) are jointly and severally liable under the charge and therefore are liable to repay the whole of the mortgage advance, as well as the balance of the sale proceeds. 

102. There are no proceedings involving only the husband and the wife, ie no contribution notice, and therefore I am not called upon to formulate any judgment for the 3^rd defendant against the 2^nd defendant with regard to her interest in the property effectively eliminated in practical terms by his undue influence over her.

103. The judgment must be drawn up to reflect these findings.  In effect this is an order nisi.  The bank still has the judgment against the 2^nd defendant under the guarantee.

THE COSTS

104. The bank is entitled to its costs of the whole action against the 2^nd defendant who is the party responsible for this litigation in any respect, and against the 3^rd defendant.  The 3^rd defendant has succeeded to a limited extent, not against the bank but in principle, against her husband.  The reduction of her interest as a result of this litigation and judgment is that she must look to her husband for the loss of that interest, because he is the one responsible for that.  This too is an order nisi.

105. Essential discovery had not been dealt with as thoroughly as it should have been.  To the same extent the preparation of a core bundle in chronological order was lacking and I was presented initially with six haphazardly prepared bundles with substantial duplication and no coherent order, until I asked for a core bundle in order to reduce time and eliminate confusion. I decided that all parties were responsible to a greater or lesser extent and so no specific costs order was justified on this.

106. Any submission in regard to either of these nisi orders are to be submitted in writing (NO MORE THAN TWO (2) PAGES) within five days, ie by 12 noon on the 8^th day of December 2014).