LEI SHING HONG CREDIT LTD v. SAN TONG LEE CO LTD AND OTHERS

HCMP 2525/2013

[2020] HKCFI 3119

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2525 OF 2013

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 J U D G M E N T

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Introduction

1.  This is the trial of the action as between the plaintiff and the 1^st, 2^nd and 3^rd defendants, confined to the monetary claims pending which the possessory claims have been stayed.

2.  The plaintiff is a licensed money lender in Hong Kong.  Its claim against the 2^nd defendant (“Mr Keith Tai”) is for repayment of a loan advanced to him as borrower on 4 January 2011 (“Loan”) pursuant to a facility letter dated 13 December 2010 (“Facility Letter”). 

3.  The plaintiff’s claim against the 1^st defendant (“San Tong Lee”), a Hong Kong company of which the 3^rd defendant (“Madam Yu”) was at all material times a director, is for repayment of the Loan based on the covenant to repay contained in a first legal charge dated 4 January 2011 executed by San Tong Lee (“Legal Charge”) whereby 16 land lots in Demarcation District No. 116 in Yuen Long (namely, Lot Nos. 1314, 1316, 1317, 1318, 1841, 1842, 1843, 1844, 1845, 1846, 1847, 1848, 1849, 1850, 1857 and 1858) (“the Properties”) were mortgaged in favour of the plaintiff as security for the Loan. 

4.  The plaintiff claims against Madam Yu under a deed of guarantee dated 14 December 2010 (“Guarantee”) whereby she guaranteed the obligations of San Tong Lee.

5.  Mr Keith Tai’s defence is that the Facility Letter and Loan are not enforceable because of the plaintiff’s breaches of various provisions of the Money Lenders Ordinance (Cap 163) (“MLO”).  San Tong Lee and Madam Yu also rely on the MLO but in addition they allege that Madam Yu did not appreciate the nature of the documents signed due to her mental condition at the time, and that Mr Keith Tai’s father who knew of Madam Yu’s condition unduly influenced her to sign the documents.

6.  While all three defendants were legally represented at an earlier stage when their pleadings, affirmations and witness statements were filed, they have since acted in person.  San Tong Lee was given leave to be represented by its director, Madam Yu.

The facts

7.  San Tong Lee was originally held by three persons: Madam Yu (60%), Marcus Wong (30%) and Fu Yuk Man (10%), who were also its 3 directors.  On 18 June 2010, Marcus Wong’s 30% shareholding was transferred to Madam Yu.  On 8 September 2011, Fu Yuk Man and Marcus Wong resigned as directors.  On 29 November 2011, Madam Yu also resigned as director and was replaced by Elite Aspect Holdings Ltd (“Elite Aspect”), a BVI company, as sole director of San Tong Lee.  By 2019, the issued shareholding of San Tong Lee had become held as follows: Elite Aspect (54%); Song Kai Lan Olivia (Madam Yu’s daughter) (20%); Fu Yuk Man (1%); Wong Ka Ho (25%).  On 25 May 2020, Madam Yu was appointed a director again.

8.  On 3 July 2010, San Tong Lee, acting via Madam Yu, entered into a written agreement with one Tsang How Ling (acting as executrix of the last Will of Tang Lan Fong) for the sale and purchase of the Properties at the price of $7,000,000 with a completion date of 29 October 2010.  The Properties were at that time occupied by a third party, and were sold and purchased subject to such occupation.  According to Madam Yu, Tsang How Ling is her half‑sister (by the same mother, Madam Tang Lan Fong).

9.  Madam Yu knew one Mr Tai Chin Wah (“Mr C W Tai”), Mr Keith Tai’s father.  After certain discussions, they agreed to approach the plaintiff for a loan, part of which would be used for the completion of the purchase of the Properties and part of it for Mr C W Tai’s purposes.

10.  Accordingly, on 14 December 2010, Mr Keith Tai signed the Facility Letter as borrower; San Tong Lee signed it (by Madam Yu) as mortgagor and Madam Yu herself signed it as guarantor for San Tong Lee. The Facility Letter provided as follows:

“ Re: Borrower	:	Mr. Tai Kwai Leung Keith [HKID No: *******(*)]
Mortgagor	:	San Tong Lee Company Limited (C.I. No.: 1396394)
Guarantor	:	Ms. Yu Xiao Yan [HKID No: *******(*)]
Properties	:	Lot No. 1314, 1316, 1317, 1318, 1841, 1842, 1843, 1844, 1845, 1846, 1847, 1848, 1849, 1850, 1857, 1858 in D.D. 116, Yuen Long, New Territories
Loan amount	:	HK$18,000,000.00

With reference to your application to borrow a Loan of such amount as set out below (the ‘Loan’) against the security of the Properties, we are pleased to confirm that your application has been approved subject to the terms and conditions set out herein.

Loan Amount	:	HK$18,000,000.00 (General Credit Facility)
Legal Charge Type	:	ALL MONIES
Loan Tenor	:	1 year
Interest Rate	:	HKD Best Lending Rate + 7.00% p.a. (at present is 12.00% p.a., subject to fluctuation at our discretion)
Repayment Type	:	Interest is payable on a monthly basis and principal will be repaid in full one year after the date of advance (renewal subject to our approval)
Maturity Date	:	One year after the date of advance
Securities for the Loan	:	- First Legal Charge on the Properties; and - An unlimited personal guarantee from Ms. Yu Xiao Yan
Occupation of the Properties	:	The Properties are to be occupied by the borrower for domestic use
Prepayment Fee	:	3.00% on the prepaid amount for the first three months from the date of advance and thereafter waived
Prepayment	:	Prepayment is allowed subject to 30 days’ prior notice
Set up fee	:	1.00% on the loan amount to be deducted from the loan drawdown
Valuation fee	:	HK$20,000.00 to be paid upon signing of the Facility Letter
Penalty Interest	:	4.00% per month on a day to day basis for any outstanding amount due and not paid from the due date to the date of payment
Late Charges …”	:	HK$300.00 will be levied on any late payment

11.  Madam Yu also executed the Guarantee dated 14 December 2010, by which she guaranteed to the plaintiff the due and prompt performance and discharge by San Tong Lee of all its indebtedness, obligations, liabilities and undertakings under the Agreement, Credit Arrangements and Transactions (as defined) set out therein.  The schedule to the Guarantee referred to the relevant Credit Arrangements and/or Transactions relating to or as provided in the Facility Letter, a copy of which was annexed to the Guarantee.

12.  By a notice of drawdown dated 14 December 2010 and signed by Madam Yu on behalf of San Tong Lee, the plaintiff was asked to credit the sum of $17,800,000 ($18,000,000 less the 1% set up fee and $20,000 valuation fee) on 4 January 2011 into the bank account of the solicitors firm, Gloria Chan & Co.

13.  Completion of the sale and purchase of the Properties took place on 4 January 2011.  The Loan was drawn down in the sum of $17,800,000, of which $6,523,000 was used for completing the purchase of the Properties, which were assigned to San Tong Lee.  By the Legal Charge dated 4 January 2011 executed by Madam Yu on behalf of San Tong Lee as mortgagor, and by Mr Keith Tai as borrower, San Tong Lee agreed to mortgage the Properties as security for the Loan, and both Mr Keith Tai and San Tong Lee covenanted to pay to the plaintiff the amount of all moneys due.

14.  On 22 June 2012, San Tong Lee commenced an action (HCA 1081/2012) against 9 defendants (who have since been joined as the 4^th to 11^th and 13^th defendants in the present action respectively), alleged to be trespassers in wrongful occupation of the Properties.

15.  Between February 2011 and July 2013, Mr Keith Tai or San Tong Lee paid sums to the plaintiff, broadly on a monthly basis, on account of interest on the Loan accrued up to 5 June 2013.  No further repayment was made thereafter.  On 8 July 2013, the plaintiff’s solicitors wrote to all three defendants demanding repayment of the outstanding sums in respect of the Loan.

16.  On 19 September 2013, San Tong Lee commenced an action in the High Court (HCA 1786/2013) against Mr Keith Tai (“1786 Action”).  I shall describe the 1786 Action further below.  Suffice it to note at this point that in that action, San Tong Lee claims against Mr Keith Tai for an order that he should wholly repay the sum demanded by the plaintiff under the Facility Letter.

17.  On 30 September 2013, the plaintiff commenced the proceedings herein by way of originating summons against San Tong Lee, Mr Keith Tai and Madam Yu, claiming repayment of the amounts due under the Loan and possession of the Properties.  The 4^th defendant was joined by order on 10 November 2014.  The action was on 20 October 2015 ordered to proceed as if begun by writ.  The 5^th to 13^th defendants were joined by order on 5 February 2018.  On 9 April 2019, it was ordered that the plaintiff’s monetary claim against the 1^st, 2^nd and 3^rd defendants be tried first, pending which the procession claim for the Properties be stayed.

The parties’ pleaded cases

18.  In its re‑re‑amended statement of claim dated 2 May 2019, the plaintiff claims:

(1)  the principal sum of the Loan in the amount of $18,000,000;

(2)  4 monthly interest repayments in arrears (due from 6 May to 4 September 2013) in the amount of $879,676.67;

(3)  additional interest on the outstanding interest in (2) above in the amount of $69,515.87;

(4)  late charges for 4 late instalments in the amount of $1,200;

(5)  surveyors’ fees in the amount of $3,000; (the above (1) to (5) coming to a total sum of $18,953,392.54); and

(6)  interest on the principal of $18,000,000 and the interest in arrears in (2) above respectively at the rate of 4% per month.

19.  At trial the plaintiff revised its claim in these ways:

(1)  The plaintiff deducted the set‑up fee of 1% ($180,000) and the valuation fee ($20,000) from the principal, which was therefore reduced to $17,800,000.  Since monthly repayments of interest were made between 2011 and 2013 on the basis of a principal sum of $18,000,000, the amounts paid exceeded the interest accrued on a loan of $17,800,000.  The plaintiff treated the excessive amounts paid as repayments of principal.

(2)  The plaintiff decided to forgo all sums claimed on account of penalty interest, surveyors’ fees and late charges.  The resultant overall amount claimed as outstanding as at 23 November 2020 was $33,568,922.23.  The calculations were set out in a schedule annexed to the plaintiff’s written opening submissions and confirmed by the plaintiff’s witness.

20.  San Tong Lee and Madam Yu have filed pleadings (the latest version being their re‑amended defence and counterclaim dated 6 March 2018), affirmations and a witness statement of Madam Yu which were all prepared at a time when they were legally represented.  They began to act in person in January 2020.  Their pleading states that (1) because of breaches of sections 22 and 25 of the MLO, the Facility Letter, the Loan, the Legal Charge and the Guarantee are all illegal and/or unenforceable; (2) at the time of the execution of the documents, Madam Yu “was not in a proper and capable mental condition … to appreciate the legal effect of the documentation” and did not appreciate the nature of the documents; Mr C W Tai knew of Madam Yu’s mental condition and knew that she was not in a position to make major decisions or execute legal documents due to her mental condition; Madam Yu signed the documents under the undue influence of Mr C W Tai, which the plaintiff knew or ought to have known.

21.  Mr Keith Tai also filed a defence and three affirmations while he was legally represented.  He began to act in person in June 2019.  His amended defence dated 1 March 2018 pleads that the Facility Letter breached section 22 of the MLO and is unenforceable and that the Loan is extortionate under section 25 and as such also unenforceable.

The 1786 Action

22.  In the 1786 Action, the pleadings were closed at the end of 2013.  No substantive step has been taken by either party after October 2014 when Madam Yu made an affirmation for the purpose of amending the statement of claim.[1]

23.  Mr Keith Tai’s and Madam Yu’s evidence in these proceedings has often touched on the dealings between Mr Keith Tai and his father, Mr C W Tai, on the one hand, and San Tong Lee and Madam Yu on the other, including how the acquisition of the Properties and the Loan came about and what was agreed between them.  However, although the subject matter of the 1786 Action has a close connection with the Loan, there has been no direction for that action to be tried together with the present proceedings.  The plaintiff is not privy to the dealings between the Tai’s and Madam Yu.  No claim for contribution or indemnity has been made between the defendants between themselvesin these proceedings, and Mr C W Tai has not been called by any party to give evidence.  The 1786 Action remains to be resolved as between Mr Keith Tai and Madam Yu, based on evidence to be given therein, if that action is taken further.  For these reasons it seems to me that except to the extent necessary, I should confine my determination to the defendants’ respective liability to the plaintiff and refrain from adjudicating upon any dispute between the Tai’s and Madam Yu arising from the evidence.

The issues

24.  Based on the pleadings, the following issues arise for determination:

(1)  Were there infringements of the MLO?  If so, what are the legal consequences?

(2)  (a) Was Madam Yu suffering from mental incapacity at the time so that she did not understand the nature and effect of the documents she entered into?  (b) Did the plaintiff know and ought the plaintiff to have known of her mental incapacity?

(3)  (a) Was Madam Yu acting under the undue influence of Mr C W Tai when she signed the document in question?  (b) If so, was the plaintiff put on inquiry? (c) If so, did the plaintiff take reasonable steps to satisfy itself that there was no undue influence?

Infringements of the MLO

25.  Section 22 of the MLO provides:

“ (1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—

(a) the payment of compound interest;

(b) prohibiting the repayment of the loan by instalments; or

(c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement:

Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Ordinance as part of the interest charged in respect of the loan.

(2)  Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

26.  Based on the terms of the Facility Letter, Mr Kevin Hon, who appeared on behalf of the plaintiff, conceded that section 22(1)(a) was breached because the penalty interest charged on “any outstanding amount due and not paid” may give rise to interest on unpaid interest, and the proviso to section 22(1) does not apply because the rate is not the same rate in respect of the principal apart from any default.  Mr Hon also conceded that section 22(1)(c) was breached because the rate of penalty interest is 48% p.a., higher than the rate for the loan without default.

27.  Mr Hon submitted, however, that there was no breach of section 22(1)(b).  I agree.  There is nothing in the Facility Letter or other documentation to prohibit the repayment of the Loan by instalments as such.  In fact, it expressly permits prepayments with prior notice, which are not required to be for the full amount of the Loan.

28.  Section 25 of the MLO provides:

“ (1) Subject to section 24(2), where—

(a) proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

(b) subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate,

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

…

(3)  Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair.”

29.  Mr Hon also conceded that the effective interest rate under the Facility Letter would upon default exceed 48% p.a. because of the late charges imposed in addition to the penalty interest of 48% p.a. and because penalty interest could be charged upon unpaid interest, and that the agreement is therefore by virtue of section 25(3) presumed to be extortionate.

30.  Although the set up fee of 1% and the valuation fee of $20,000 are not the subject of complaint in the defendants’ pleadings, the plaintiff accepted at the trial that these amounts should be deducted from the principal amount of the Loan.  This may be arrived at by either (1) treating these amounts as falling foul of section 27(1) which should pursuant to section 27(4) be set off against the amount lent; or (2) treating these amounts as not lent in the first place so that the amount actually lent was the reduced amount.  Both routes mean that the principal amount of the Loan is reduced to $17,800,000. 

31.  It is true that a breach of section 27 itself does not render the entire agreement illegal and unenforceable: see Easy Fortune Property Ltd v Yung Chun Him (HCA 1484/2014, 12 August 2016), §§33-34; Hao Tian Finance Co Ltd v Hung Yuk Ming & another [2020] HKCFI 465 at §103.  As a corollary of the reduction of the principal, however, it follows, as Mr Hon also conceded, that the Facility Letter, which stated the loan amount to be $18,000,000, was not correct.  There was consequently no note or memorandum in writing stating the correct amount of the principal of the loan, as required by section 18(2) of the MLO, and the Loan could be said to be unenforceable for this reason: John Robert Lees and Tsui Chi Chiu, Joint and Several Liquidators of GMF Finance Ltd (in Creditors’ Voluntary Liquidation) v Evon & another [2018] HKCFI 366, §30.  This point, however, has not been pleaded or raised by the defendants.  In any event, there is a discretionary power in section 18(3), in terms similar to section 22(2), for the court to hold the agreement enforceable nonetheless.

32.  On behalf of the plaintiff, Mr Hon, relying on Hao Tian Finance Co Ltd v Hung Yuk Ming & another at §§105‑108, submitted, among other things, that the plaintiff actually advanced its own money for the Loan, that the 2^nd defendant admitted that he understood the nature of the transaction and documents and that 12% p.a. whilst expensive was acceptable to him, that the limit of 48% p.a. in section 25 was not exceeded intentionally but only because the plaintiff was not sufficiently careful, and that the Properties were occupied by third parties so that the Loan albeit secured on the Properties was not without risks from the plaintiff’s point of view, as evidenced by the fact that the plaintiff had to join the other defendants to pursue its possession claim in the action.  It was also said that this loan was a relatively “old” one and that the plaintiff had since revised its standard loan documentation to ensure compliance with the MLO.  He urged the court to exercise its discretion under section 22(2) (and insofar as applicable, section 18(3)) in such a way as not to hold the Loan to be entirely unenforceable, but to enforce it to the extent of the repayment of the principal of $17,800,000 with interest at 12% p.a., less the repayments already made.

33.  As regards section 25, Mr Hon submitted that although the transaction was presumed to be extortionate, the presumption could be rebutted and should be held to have been rebutted.  It seems to me unnecessary to deal with this point[2] because there is no suggestion that the court’s discretion to re‑open an extortionate transaction under section 25(1) should in this case be exercised to produce any different result from the exercise of the discretion under sections 18(3) and 22(2).

34.  In John Robert Lees and Tsui Chi Chiu, Joint and Several Liquidators of GMF Finance Ltd (in Creditors’ Voluntary Liquidation) v Evon & another [2019] HKCA 105, where section 18 became relevant because the loan amount was reduced for similar reasons after deducting various fees or prepayments, the court enforced the loan as to principal but only allowed interest at the commercial rate of the prime rate plus 1% p.a., observing that moneylenders “should not be encouraged to think that the Ordinance may be contravened with impunity”.[3]

35.  I note also that in the present case the breaches of the MLO were quite obvious.  There was moreover no admission of any infringement until trial.  Instead, the plaintiff had been claiming repayment based on the principal sum of $18 million with interest at 48% p.a.

36.  Taking into account all the circumstances of the case including in particular those urged upon this court by Mr Hon, I consider that it would be inequitable to hold the contract entirely unenforceable and that it would be fair and just to enforce the Loan together with interest at the prime rate plus 1% p.a. from the outset.  On this basis, the monthly interest payments made in the first two years of the Loan in excess of the true interest payable should be treated as repayment of the principal.  The precise calculations are to be worked out by the plaintiff and examined by the defendants.

Madam Yu’s mental capacity and understanding of the documents

37.  Madam Yu says, and I accept, that burglars broke into her residence during the Lunar New Year of 2009 (27 January 2009) and tied her up while they ransacked the place, and that she was traumatised as a result.  While I have every sympathy for her for having suffered that attack, there is no evidence that her mental faculties were relevantly impaired as a result.

38.  A letter from her psychiatrist, Dr Ting Sik Chuen, whom she had consulted since 14 March 2009, has been put into evidence pursuant to an order dated 8 September 2014, though only as evidence of fact and not as expert evidence.  A subsequent letter from Dr Ting adduced as an exhibit was struck out under the same order. According to the first letter of Dr Ting, Madam Yu was first diagnosed to be suffering from “Depressive Disorder in moderate severity” and her condition improved gradually after being treated with a course of anti‑depressant.  She relapsed in May 2010, three months after discontinuation of medication, and improved after being treated with anti‑depressant again.  She was last seen by Dr Ting on 16 November 2010.  According to Dr Ting, Madam Yu had been suffering “Recurrent Depressive Disorder”.  During episodes of relapse, she would be “very irritable with poor tolerance to frustration”. 

39.  In my view, this is not sufficient to show that Madam Yu’s cognitive powers were reduced by her condition or that her will would be more easily overborne or that she would be particularly susceptible to undue influence.  The burden is on San Tong Lee and Madam Yu to prove that Madam Yu’s understanding of the documents and transactions was materially impaired by her mental condition.  In my opinion they have failed to discharge that burden.

40.  Further, while the plaintiff was aware of the burglary (from the report in a newspaper that Madam Yu showed Mr Lam Kam Leung, the plaintiff’s General Manager, in December 2010), there is no basis to show that the plaintiff knew or ought to have been aware of any abnormality in Madam Yu’s mental condition: Lam San Keung v Beauti Rich International Enterprise Ltd [2017] 6 HKC 558, §63.  I accept the evidence of Mr Lam that Madam Yu appeared to him mentally sound and capable of expressing herself clearly and that she did not tell him she had any mental incapacity.

41.  Another employee of the plaintiff, Mr Lee Ka Yip, had also made an affirmation stating he was not aware of any mental weakness on the part of Madam Yu.  But since Mr Lee did not come to the trial to give evidence, I place no weight on his affirmation.  I do not draw any adverse inference from his absence against the plaintiff, however, as he had left the plaintiff’s employ and was unwilling to testify, and the plaintiff did not have his address for service of a subpoena on him.

Non est factum

42.  Given that Madam Yu is an educated person with commercial experience, and is conversant with both Chinese and English, the case that she did not understand the documents or transactions she was entering into herself or on behalf of San Tong Lee — under the legal doctrine of non est factum — has a very high hurdle to pass.  In my view that case is not made out.  Not only is there no credible evidence that Madam Yu did not in fact understand the nature of the documents she signed, there is documentary evidence which recorded that the documents had been explained to her or her acknowledgment that she understood them. 

(1)  Madam Yu signed a “Warning Notice” dated 14 December 2010 and addressed to her as guarantor, which stated:

“ …

2. Before you sign the Guarantee and the other security documents (if any) including the Guarantee (as the case may be) which you have to sign if you go on with the transaction you should instruct a solicitor to protect your interests and to ensure that your rights and liabilities under the security documents are properly protected.

3. YOU ARE RECOMMENDED TO INSTRUCT YOUR OWN SOLICITOR who will be able at every stage of the transaction to protect your interest and to give you independent legal advice.

4. If you do not instruct your own solicitor, you will be required to attend the office of the solicitors acting for the Lender solely to sign and execute the security documents and the solicitors will only be instructed by the Lender to explain and to witness your signing and execution of the security documents. They do not act as your solicitor and will not be giving you any legal advice regarding the security documents.

5. YOU ARE STRONGLY ADVISED to obtain the financial information of the Borrower and the Mortgagor and engage your own financial adviser to give you advice on such financial information before signing and executing the security documents.

6. Your liability under the Mortgage and the Guarantee (as the case may be) will be unlimited if you decide to go on with the transaction and sign and execute the Guarantee (as the case may be).

7. You also have the choice not to proceed with the transaction in connection with the banking facilities/mortgage loan to be granted to the Borrower.

8. Please think carefully before deciding whether to proceed with the transaction.  You are free to choose whichever option you prefer.”

(2)  Madam Yu signed on behalf of San Tong Lee a “Letter of Acknowledgment” dated 14 December 2010 which stated:

「 有關上述樓宇之按揭事宜，本人知道並確認該按揭是由 貴律師行代表上述銀主辦理，由銀主以無限額貸款方式借款港幣壹仟捌佰萬元正予按揭人/借款人並以按揭人/借款人之物業作為抵押，而 貴律師行亦通知本人應就此事宜及按揭尋求獨立法律意見以確保本人之利益。雖然 貴律師行已通知本人尋求獨立法律意見，但本人仍決定毋須尋求獨立法律意見，並在 貴律師行簽署該樓宇按揭及所有其他關文件，且願意自行承擔一切法律責任。」

(3)  Madam Yu signed on behalf of San Tong Lee a letter dated 14 December 2010 and addressed to the plaintiff as well as to Gloria Chan & Co, stating:

「 本人/吾等為上述物業之業主，現擬將上述物業抵押/按揭予財務，以保證借款人欠下財務的債項。本人/吾等經律師行清楚解釋[以廣東話]知悉本人/吾等將簽署的按揭及其他有關文件會對本人/吾等產生的法律責任及債務。經律師行解釋，本人/吾等清楚明白以下事項：

1. 雖然本人/吾等現向財務取得港幣壹仟捌佰萬元正 (HK$18,000,000.00) 之貸款，本人/吾等將簽署之第一按揭契據為無限額之抵押契據。本人/吾等在此契據中的責任並不限於港幣壹仟捌佰萬元正 (HK$18,000,000.00)。根據契據中條款，此抵押是用以保證本人/吾等欠下財務所有的債項。債項包括所有、現有、將來、實質或可能出現，無論是本人/吾等單獨或與其他人共用，或是以本人/吾等以擔保人身份所欠下債務（下稱『抵押債項』）。

2. 拫據抵押契據，當財務要求償還『抵押債項』時，本人/吾等承諾立即償還。換句話說，契據包含無限額個人擔保義務。

3. 當本人/吾等無法償還抵押債項時，財務有權接管並出售物業而毋須取得本人/吾等同意。倘出售物業後仍未能全數漬還抵押債項及有關之法律費用及支出，本人/吾等亦須全數清還所欠之餘款。

本人/吾等確認：

甲) 本人/吾等自願簽署抵押契約，並沒有受到律師行，財務或任何人仕之壓迫或利誘。

乙) 本人/吾等明白律師行在此按揭及貸款安排中為財務而非本人/吾等之代表律師。律師行之職員曾積極提議本人/吾等宜先尋求獨立法律意見，以保障本人/吾等之利益。本人/吾等特此聲明基於本人/吾等個人理由，決定放棄自聘獨立律師或諮詢獨立律師之意見。由此決定所引致本人/吾等之一切損失，本人/吾等均自願承擔，概與律師行或財務無關。」

(4)  In addition, a “Model letter by surety to solicitor where charging property to secure loan to borrower or his/her business” dated 14 December 2010 stated that Madam Yu attended a meeting with Ms Gloria Chan, solicitor, at the offices of Gloria Chan & Co where Mr Keith Tai, the borrower, was not present, and that at the meeting Ms Chan explained the liabilities under the documents (namely the Facility Letter and Legal Charge) and explained that San Tong Lee did not have to agree to the arrangements.  Madam Yu signed on behalf of San Tong Lee acknowledging that she had been given and understood the advice.  Ms Gloria Chan also signed the letter confirming that it contained a correct record of her meeting with Madam Yu.

43.  During her cross‑examination, Madam Yu accepted that when she executed the documents, she knew that they related to a loan and understood that the loan had to be repaid, including by her.  She knew that the balance of the purchase price of the Properties came from the Loan and that the Properties were being mortgaged for the Loan.  She thought that lenders would lend without security.  Madam Yu is an educated person and a writer by occupation, with business experience and work experience as a reporter.  The broad nature of the documents and the obligations she and San Tong Lee undertook thereby were fully within the range of her comprehension and understanding.

44.  In my opinion, San Tong Lee and Madam Yu have failed to prove that Madam Yu did not understand the nature of the documents or transactions that she entered into either for herself or on behalf of San Tong Lee.

Undue influence

45.  To succeed on the defence of undue influence, San Tong Lee and Madam Yu have to show that the transactions in question were affected by the undue influence of Mr C W Tai, and that the plaintiff was put on inquiry: Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773, §101.

46.  In Bank of China (Hong Kong) Ltd v Wong Kam Ho [2014] 1 HKLRD 41 at §25, it was stated:

“ Undue influence is a doctrine of equity that enables the court to strike down a transaction where the intention to enter into it had been procured unconscionably. This may arise where the claimant had been overborne or coerced by another person, or where a person in whom the claimant had reposed trust and confidence abused that relationship in procuring the claimant’s consent. The forms that undue influence can take are infinitely varied and cannot be exhaustively set out, but they all result in the conclusion that the consent and intention of the claimant is so vitiated that it ‘ought not fairly to be treated as the expression of a person’s free will’: Etridge, supra, at para 7, per Lord Nicholls.”

47.  In essence, Madam Yu alleged that Mr C W Tai exploited her vulnerable mental condition at the time between 2009 and 2010 and persuaded her to enter into the transaction for using the Properties as security to obtain a loan for himself.  The case according to her oral evidence was that Mr C W Tai wanted to raise a loan for his own business and sought help from Madam Yu.  He advised her to raise funds through a mortgage of the Properties (which were part of her mother’s estate), using a company to acquire and hold the Properties as this would facilitate the application for any necessary permission for redevelopment subsequently.  Madam Yu discussed the proposal with her elder half‑sister, Tsang How Ling, who was the executrix of the estate of their deceased mother.  Her sister eventually agreed to transfer the Properties to Madam Yu’s company at $7,000,000.  Madam Yu agreed with Mr C W Tai to use the Properties as security to borrow money, and he undertook that he would repay the loan within half a year.

48.  Madam Yu’s evidence is unreliable and I am not prepared to accept her account as facts.  But even on her own case, the Loan was a transaction discussed between her and Mr C W Tai at arm’s length and she had herself benefited from it.  It is undeniable and not disputed that $6,500,000 out of the Loan[4] was used for the acquisition of the Properties by San Tong Lee, which was held by Madam Yu at the time as to 90%.  It appears that part of the Loan was deployed by Mr C W Tai for his purposes, but there is nothing too surprising in this as, after all, it was his son, Mr Keith Tai, who was the borrower.  In any event, as stated in Bank of China (Hong Kong) Ltd v Wong King Sing & others [2002] 1 HKLRD 358 at §34, the defence of undue influence 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”.  There is nothing to suggest that Mr C W Tai was in such a relationship with Madam Yu that she reposed trust and confidence in him from which, coupled with any unusual features of the transaction, a presumption of undue influence might arise.

49.  Madam Yu said Mr C W Tai hurried her to enter into the transactions and sign the documents but this did not in itself constitute undue influence.  Nor would persuasion, or taking advantage of Madam Yu’s kindness and generosity, in itself amount to undue influence.  It was pleaded that Mr C W Tai told Madam Yu that the documents were ordinary commercial papers without any serious legal consequences for her or San Tong Lee, but this was not made out.  Nor do I accept the allegation that no one explained the documents to her, which was contradicted by, among other things, the model letter by surety to solicitor referred to above.

50.  In this connection, Madam Yu asserted that a sum of $777,000 was paid to the plaintiff’s employees as bribes or “tea money” for procuring the Loan.  I do not accept her evidence.  In her 5^th affirmation, one of the employees was identified as one Mr Kwan, but in oral evidence she changed the recipient to Mr Lam, the General Manager.  It is difficult to see how such a mistake could have been made, if the alleged bribes were indeed paid.  In fact, the documents show that the sum of $777,000 was paid by a company, Win United Ltd, owned or controlled by Mr C W Tai or Mr Keith Tai, to Madam Yu, as follows:

Date	Amount	Manner of payment
6-1-2011	$100,000	Cash
6-1-2011	$200,000	Cheque
17-1-2011	$177,000	Cheque
17-1-2011	$100,000	Cheque
31-5-2011	$200,000	Cheque
Total	$777,000

At the trial Madam Yu denied having received the third to fifth sums above but I am satisfied from the documentary evidence that she did receive them.  She was not able to explain credibly how these sums ended up being paid to the plaintiff’s employees as bribes as she alleged.  The only basis for her assertion was that she was told by Mr C W Tai.

51.  In conclusion, San Tong Lee and Madam Yu have failed to establish that the transactions were entered into by them under any undue influence from Mr C W Tai or anyone else.  The questions of whether the plaintiff was put on inquiry and whether the plaintiff had taken all reasonable steps to satisfy itself that the mortgagor’s and guarantor’s consent had been properly obtained do not arise.

Disposition and orders

52.  For the above reasons, I conclude that the defences raised by San Tong Lee and Madam Yu based on Madam Yu’s mental condition, non est factum and undue influence fail.  There were infringements of the MLO but it would be inequitable to hold the entire Loan unenforceable. It is fair and just to allow the Loan, Legal Charge and Guarantee to be enforced to the extent of the principal amount of the Loan, with interest at prime plus 1% per annum from the date of drawdown, less the repayments already made.

53.  Judgment will be entered against San Tong Lee, Mr Keith Tai and Madam Yu jointly and severally for payment of the sum calculated accordingly up to the date of this judgment.  Interest will thereafter be payable at the judgment rate on the entire judgment sum.

54.  As for costs, while there is provision in the Legal Charge for indemnification as to costs, it seems to me the transaction should only be enforced to the extent of giving the plaintiff costs on the party and party basis.  There would therefore be a provisional order that San Tong Lee, Mr Keith Tai and Madam Yu do pay the plaintiff the costs of the action relating to the monetary claim, on the party and party basis if not agreed.  This provisional costs order will become final unless any party applies to the court by summons within 21 days to vary it.