BANK OF CHINA (HONG KONG) LTD v. LEIGH HARDWICK

HCA1110/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1110 OF 2006

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D E C I S I O N

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1.  This is an appeal from the decision of Registrar Lung dated 10 June 2013 (“Decision”) dismissing the defendant’s Summons dated 3 April 2013 for leave to amend his Defence. By another Summons dated 8 August 2013 (“Summons”), the defendant seeks, in substance, to replace the draft Amended Defence annexed to the earlier Summons with another version (“Amended Defence”) which contains an additional defence.

2.  The arguments in this appeal turn upon whether the new defences deployed in the Amended Defence are bound to fail.  There is no dispute that if they are bound to fail, no leave should be granted for the amendment.  For the purpose of this appeal, there is also no dispute that this court should take the pleaded defences at the highest. 

Factual background

3.  The material facts can be stated briefly.  The plaintiff is a bank.  It extended an instalment loan of HK$4,830,000 to one Wel-express Development Limited (“Company”) in 1997. 

4.  There is an all monies deed of guarantee dated 6 June 1997 (“Guarantee”) signed by the defendant and one Madam Hung Chun Wai (“Madam Hung”) guaranteeing the liabilities (limited to HK$4,830,000) of the Company to the plaintiff.

5.  It is common ground that at all material times the defendant and Madam Hung were the only registered shareholders (50% each) and directors of the Company.

6.  The Company defaulted on the repayment of the loan.  A judgment was obtained by the plaintiff against the Company in respect thereof.  In this action, the plaintiff seeks to enforce the Guarantee against the defendant.

7.  In his original Defence, the only defence advanced by the defendant was that he did not sign the Guarantee.  However, a forensic report was obtained by him recently in respect of what purported to be his signature on the Guarantee and it was confirmed that the signature is likely to be his own.  

Amended Defence

8.  In the Amended Defence, it is alleged that the defendant was a mere nominee of Madam Hung, with whom he had an intimate relationship, in respect of his shareholding in and directorship of the Company. 

9.  It is further alleged that if the defendant had signed the Guarantee (which is not admitted), it was done in the following circumstances.  By reason of his relationship with Madam Hung, the defendant reposed absolute trust and confidence in her.  From time to time, the defendant was asked by Madam Hung to sign documents (such as board minutes) to satisfy formal requirements. 

10.  To the best of his recollection, on various occasions in around 1996 or 1997, the defendant was asked to sign a bulk of papers under the representation of Madam Hung that they were for the Company’s formality purposes.  The defendant was not told that the Guarantee was amongst the papers or that the documents might give rise to personal liability on his part.  However, the defendant did check some of the documents and found that board minutes and annual return were included.  He signed the documents believing in and induced by the representation. 

11.  Although it has not been explicitly pleaded, it is tolerably clear that the defendant is advancing a case of fraudulent misrepresentation having been practised by Madam Hung on him. 

12.  For completeness, in reliance on an email from Madam Hung dated 11 April 2004 (“Email”), the defendant alleges that the plaintiff was aware of the fact that he did not agree to become a guarantor of the Company.

13.  Based on the foregoing, 3 defences have been advanced – misrepresentation, undue influence and non est factum.  In respect of the first 2 defences, the plaintiff is alleged to have constructive knowledge or was put on enquiry regarding the wrongs committed against the defendant. 

14.  As regards the defence of non est factum, it is alleged that the defendant genuinely believed what he was told by Madam Hung and had therefore made a fundamental mistake as to the nature of the transaction despite having exercised reasonable caution in the matter. 

15.  Further, it is alleged that there was no word or conduct on the part of the defendant to indicate his intention to be bound by the Guarantee and there was therefore no delivery of that document[1].  In the absence of delivery, the Guarantee is not a deed but a simple contract.  Any claim based upon a simple contract had a limitation period of 6 years and was time-barred by the time the writ in this action was issued (24 May 2006) given that the demand for payment under the Guarantee was made by the plaintiff against the defendant on 18 November 1999.  

Misrepresentation and undue influence

16.  Mr Kwong, who appeared for the defendant, has very properly and helpfully conceded that there can be no arguable defence under these heads. 

17.  In recent years, it is not unusual for Masters hearing interlocutory applications to reduce their reasons for decision into writing (there is of course no requirement for the same).  One can only admire the efforts made in doing so in light of the fact that Masters have a very heavy workload.  However, with the benefit of a decision in hand, parties (certainly those represented) will be able to fully assess the merits of their case.  In this case, the Decision is reasonably detailed.  The applicable law and how it was applied were set out therein. 

18.  I agree with the Decision on the lack of merits in the defences of misrepresentation and undue influence.  They have no proper foundation given the fact that the defendant was a shareholder and director of the Company.  There is no suggestion that the loan in question was anything other than a normal business transaction in the interest of the Company.  There was no reason for the plaintiff to be put on enquiry as to any misrepresentation or undue influence of Madam Hung. 

19.  As regards the Email, the document simply does not support the allegation made (see para 12 above).  The concession made by Mr Kwong was therefore perfectly proper and consistent with his duty to assist the court to adjudicate this appeal fairly and expeditiously: see Order 1A, rules 1 and 3 of the Rules of the High Court.

Non est factum

20.  The principles relating to the doctrine of non est factum are well-established and not disputed.  It requires proof of 3 elements: (i) permanent or temporary inability to understand the document; (ii) the document must be “fundamentally”, “radically” or “totally” different; and (iii) the person signing must not have been careless: see Cartwright, Misrepresentation, Mistake and Non-disclosure, 3^rd edn, §§13.55-13.58.

21.  There is a heavy burden of proof on the person seeking to invoke the doctrine: Saunders v Anglia Building Society[1971] AC 1004 at 1016B.

22.  I do not believe that the defendant can satisfy the first requirement.  There is no plea that he was under any disability.  He plainly was not.  Rather, his case is that he was misled on the nature of the document he was signing.  On this point (putting aside the issue whether he was careless), it is pertinent to note the dicta of Lord Reid in Saunders v Anglia Building Society at 1016C-D:

“I do not say that the remedy can never be available to a man of full capacity. But that could only be in very exceptional circumstances: certainly not where his reason for not scrutinising the document before signing it was that he was too busy or too lazy. In general I do not think he can be heard to say that he signed in reliance on someone he trusted. But, particularly when he was led to believe that the document which he signed was not one which affected his legal rights, there may be cases where this plea can properly be applied in favour of a man of full capacity.”

23.  My attention has also been drawn by Mr Man, who appeared for the plaintiff, to footnote 222 on p 660 of Cartwright where the author referred to the passage cited above and suggested that it would be better to exclude from the application of this doctrine cases involving a man of full capacity, otherwise the certainty of written contracts would be seriously destabilised.  With respect, I am inclined to agree.

24.  In any case, I am unable to see very exceptional circumstances in this case.  Unfortunate it may be, circumstances similar to those before this court are not uncommon – mothers or wives signing documents without reading them but relying upon what their sons or husbands had told them. 

25.  The defendant also cannot satisfy the second requirement.  On his own case, he was signing formal documents for the Company.  I agree with Mr Man that such formal documents were, or at least could be, documents with legal consequences.  The complaint, therefore, is that the defendant did not know that the particular legal consequence was that he was assuming personal liability of the Company’s debt.  That does not make out a case of radical or total difference.

26.  Finally, it cannot be said that the defendant was not careless in signing the Guarantee.  As Lord Pearson said in Saunders v Anglia Building Societyat 1035G:

“If a person forbears to read the document, he nearly always should be reckoned as negligent or otherwise debarred from succeeding on the plea of non est factum.”

27.  The defendant had the opportunity to inspect the documents he was signing.  Indeed, he looked at some of them.  Had he looked at the Guarantee, even in a cursory manner, he would have noticed that there was a figure of HK$4,830,000 appearing above the signature clause and he would have been alerted as to the nature of that document.

28.  For completeness, I should mention the authority of Trustees of Beardsley Theobalds Retirement Benefit Scheme v Yardley, unrep, [2011] EWHC 1380 (QB) on which Mr Kwong heavily relied.  In that case, Mr Yardley was the victim of a fraud by which he was induced into signing (without reading) a legal document believing that he was merely witnessing other signatures.  The defence of non est factum was upheld “on the exception facts of [that] case” (para 55 of the judgment). 

29.  However, it should be noted that the main defence in Yardley, which succeed, was undue influence.  Having upheld the main defence, the court then dealt with the other defences, including non est factum, briefly.  With respect, I agree with Mr Man that Yardley is of limited assistance as an authority on non est factum because there was little analysis or reason on how the 3 elements were satisfied in that case. 

Delivery of the Guarantee

30.  Again, there is no argument on the law.  As stated in Emmet & Farrand on Title, Vol 2,§20-005, regarding the delivery of a deed:

“… it is clear that actual physical delivery, a handing-over, of the document as of a chattel, is sufficient without the necessity for any words, formal or otherwise (Thoroughgood’s Case(1612) 9 Co Rep 1366).”

31.  Further, as stated in Barnsley’s Conveyancing Law and Practice, 4^th edn, p 449:

“This concept of legal delivery is totally mystifying to lay people, and its legal significance is not fully appreciated by practitioners. It does not connote a physical handing over to the other side. The maker of a deed may retain it in his own possession and yet deliver it in law, provided he makes clear that he intends it as his deed presently binding on him. Delivery is therefore a question of the grantor’s intention, which need not be communicated to the grantee. A deed of gift of unregistered land may be perfectly valid and effective to vest the legal title in the donee, despite the latter’s ignorance of the transfer. Delivery of a document as a deed requires that the party whose deed it is stated to be should by words or conduct expressly or impliedly acknowledge his intention to be immediately bound by its provisions. The most expressive mode of indicating this intention is to hand the document over, saying: ‘I deliver this as my deed’. But the ceremony whereby an executing party utters such words as he places a finger on the paper wafer (as a token adoption of it as his seal) has largely fallen into disuse. Consequently delivery is now usually inferred from conduct, eg from the mere facts of signing and sealing.”

32.  In light of these authorities and given that the defendant had, on his own case, signed the Guarantee and given it back to Madam Hung or her secretary, the act of delivery had been performed.  Put another way, he intended to be immediately bound by the document he signed.

33.  Valiantly, Mr Kwong argued that by reason of the fact that the defendant was tricked and therefore did not know what he was signing, he could not have formed the intention to be immediately bound by the Guarantee.

34.  There are two problems with this argument. Firstly, it is a non est factum argument via the backdoor.  Mr Kwong submitted that the additional element of delivery allows such an argument to be made.  I cannot agree.  I am unable to see why a deed is treated differently when it comes to non est factum.  No authority has been referred to by Mr Kwong in support of his argument.  On the other hand, as pointed out by Mr Man, Saunders v Anglia Building Society was concerned with a deed.

35.  Secondly, I agree with Mr Man that the argument is unsustainable because, under the law of contract, the court does not enquire into the subjective state of mind of the contracting parties but gives effect to the objective meaning of the words or conduct of the same.  Indeed, Mr Kwong’s argument is inconsistent with the authorities cited in paras 30 and 31 above.

Prejudice

36.  For completeness, I should mention that Mr Man has, quite fairly, accepted that in light of the defendant’s concession on the defences of misrepresentation and undue influence there is no longer any basis for maintaining a case of prejudice which may result from the amendment sought by the defendant. 

Conclusions

37.  For these reason, I dismiss the appeal as well as the Summons.  I make an order nisi that the costs of and occasioned thereby be to the plaintiff to be taxed if not agreed.

38.  Last but not least, I am grateful for the assistance rendered by both counsel in these matters.