WING HANG CREDIT LTD v. HUI CHUN KIT BENJAMIN AND ANOTHER

HCMP 732/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 732 OF 2009

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BETWEEN

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J U D G M E N T

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Introduction

1.  These proceedings concern a property known as Flat A on the 10th Floor of Block 3, Wonderland Villas, No. 9 Wah King Hill Road, Kwai Chung, New Territories (“the Property”).

2.  The Property had been registered in the name of Madam Wu Kwei Ying (“Madam Wu”) since 1993.  In November 2005, Madam Wu signed a sale and purchase agreement and an assignment in favour of her grandson, Mr Hui Chun Kit Benjamin (“Mr Hui”).  I shall refer to these documents as the Agreement and the Assignment respectively.  At the same time, Mr Hui mortgaged the Property to Wing Hang Credit Limited (“Wing Hang”) for a loan.  In 2008, Mr Hui granted a second mortgage of the Property to Eton Mortgage Limited (“Eton”) for a further loan.  In 2009, after Mr Hui defaulted in the mortgage loan repayment, Wing Hang sought to enforce its security over the Property.

3.  Madam Wu’s case is that both the Agreement and the Assignment were signed by her under a mistake and are void by virtue of the doctrine of non est factum.  Alternatively, she alleges that Mr Hui induced her to sign the documents by misrepresenting to her their nature so that the Agreement and the Assignment should be set aside.

The proceedings

4.  The action was commenced by Wing Hang by originating summons for vacant possession of the Property pursuant to a mortgage dated 29 November 2005 (“the Mortgage”) and for payment of money due under the Mortgage.  When the action began, there was only one defendant, namely, Mr Hui, who was the registered owner of the Property and the borrower and mortgagor under the Mortgage.

5.  On her own application, Madam Wu was joined as a party to the proceedings as the second defendant.

6.  Judgment having been entered against Mr Hui for the payment of the outstanding principal and interest due under the Mortgage, Wing Hang’s remaining claim for possession of the Property was ordered to continue as if begun by writ.

7.  In addition to opposing Wing Hang’s claim, Madam Wu also counterclaims against Mr Hui, Wing Hang and Eton for a declaration that the Agreement and the Assignment are void, alternatively for an order that they be set aside, and for a declaration that neither Wing Hang nor Eton has obtained any interest in the Property at all.

8.  Eton in turn counterclaims against Mr Hui for vacant possession of the Property and for sums representing the outstanding principal and interest under the loan agreement.

The parties’ contentions – Madam Wu’s case

9.  Madam Wu’s case is that the Property was a gift to her from her son, Mr Wang Chi Keung (“Mr Wang”), made in 1993.  In late 2005, Mr Hui and his mother Wong Wai Chu Linda (i.e. Madam Wu’s daughter), whom I shall call Madam Wong, asked Madam Wu to mortgage the Property for a loan so that Mr Hui could have the use of the loan proceeds.  Madam Wu admits having signed the Agreement and the Assignment but contends that when she signed them she thought she was entering into a mortgage of the Property.  In particular, her case is that Mr Hui made a fraudulent oral misrepresentation to her that the documents she was to sign were for mortgaging the Property.  She never intended to sell or transfer the Property to Mr Hui.

10.  On this basis, Madam Wu contends the Agreement and the Assignment were null and void because they were, by virtue of the doctrine of non est factum, not her deeds, and that it follows that Wing Hang obtained no effective interest under the Mortgage since Mr Hui, the mortgagor, had failed to acquire any interest in the Property.  As an alternative case, Madam Wu contends that the Agreement and the Assignment can and should be set aside because of Mr Hui’s misrepresentation.  That Wing Hang had taken a mortgage of the Property from Mr Hui is no obstacle because it was not a bona fide mortgagee without notice.

11.  Essentially the same contentions are raised by Madam Wu vis-à-vis Eton.

12.  Madam Wu has not pleaded or otherwise raised any allegation that either Mr Hui or Madam Wong had exerted any undue influence over her whether in relation to the Agreement and the Assignment or otherwise.

Mr Hui’s case

13.  Mr Hui denies Madam Wu’s allegations.  Supported by his mother Madam Wong whom he called as a witness, he takes the position that the Property was paid for by Madam Wong in 1993 and merely put into the name of Madam Wu without any intention of making a gift to her.  His case is that Madam Wong decided to put the Property in his name instead in late 2005 with a view to his obtaining a mortgage loan the proceeds of which could be used to finance the business that Madam Wong and Mr Wang together owned and ran.  It was decided that the transfer would take the form of a sale and purchase.  He contends that this was discussed with Madam Wu who was aware of and agreed to the arrangement.  He denies having misrepresented to Madam Wu the nature of the documents that she signed.

14.  In addition, Mr Hui says that in 2008, Madam Wong and he decided to sell the Property.  Madam Wu, who had moved in to live in the Property since 2006, agreed and a contract was entered into with third parties for the sale and purchase of the Property. However, Madam Wu later reneged, refusing to move out, as a result of which the intended sale fell through and Mr Hui had to compensate the third parties.

15.  As stated above, monetary judgment was entered against Mr Hui in favour of Wing Hang on 13 October 2009.  On 20 October 2009, he was adjudged bankrupt.  Mr Hui does not oppose Wing Hang’s claim.  Nor does he dispute Eton’s claim, to which he has filed no defence.

Wing Hang’s case

16.  Wing Hang does not accept Madam Wu was mistaken about the nature of the documents that she signed, but contends that even if she was, she is not entitled to rely on the plea of non est factum because, first, the documents signed were not fundamentally different from what she says she believed she was signing, and secondly, there was negligence on her part in the execution of the documents in question.

17.  As for Madam Wu’s plea of misrepresentation, Wing Hang does not accept any misrepresentation was made but says that even if there was a misrepresentation by Mr Hui, rescission is no longer available to Madam Wu because Wing Hang’s rights as a bona fide mortgagee without notice have intervened.

18.  Wing Hang further contends that even if the Agreement and the Assignment were at one time voidable, Madam Wu has in any event affirmed them by, inter alia, stating in two solicitors’ letters written on her behalf in 2009 that she was prepared to settle the outstanding amount of Wing Hang’s mortgage loan.

19.  Further, Wing Hang contends that Madam Wu has to make restitution of all sums she received as a result of the transaction in 2005 if she is to rescind the transaction.

Eton’s case

20.  Eton’s case is simple. It was not involved in the transactions in November 2005 at all.  It does not accept Madam Wu’s allegations and puts her to proof.  It contends that the second mortgage of the Property in its favour is valid.  As against Mr Hui, it seeks judgment for sums due under the loan agreement and possession of the Property, subject to the rights of Wing Hang as a prior mortgagee.

The main issues

21.  Except for the matters raised by Madam Wu, there is no dispute that the two mortgages are valid and have effect.  The scope of the issues in the trial is therefore delineated by the specific pleas of Madam Wu and the other parties’ response to them.

22.  On Madam Wu’s case of non est factum, the principal questions that arise for determination are these: did she execute the Agreement and the Assignment thinking they were some other documents?  If so, was the difference sufficiently fundamental to entitle her to disown the documents?  Was there negligence on her part such as to preclude reliance on this plea?

23.  The principal questions that arise on Madam Wu’s case of misrepresentation are these: did Mr Hui misrepresent the nature of the documents to Madam Wu and was she induced thereby to enter into the documents?  Are Wing Hang and Eton bona fide mortgagees without notice whose rights have intervened so that rescission of the Agreement and the Assignment is no longer possible?  Has Madam Wu in any event affirmed the documents?

24.  A further question arises as to whether Madam Wu has to make restitution in order to obtain relief under either of her pleas.

The facts

25.  In order to put the facts in their proper context, it is necessary to describe briefly the family background.  Madam Wu is now 87 years of age.  She is the mother of Mr Wang and Madam Wong and at least one other son.  For many years until 2005, Madam Wu had lived with the family of Madam Wong in two connected flats in Mei Foo Sun Chuen.  Indeed, she helped bring up her grandson, Mr Hui, who is now about 36 years old.

26.  In about 1991, Madam Wong and her husband began to take part and invest in the garment manufacturing business established by Mr Wang and operated through two companies called Harlizhun Company Limited (trading in the name of Donlake Fashions) and Ever Sincere (Hong Kong) Limited.  They made a capital investment into the business and also mortgaged their home (the two connected flats in Mei Foo Sun Chuen) as security for the credit facilities of the business.  Madam Wong, her husband and Mr Wang also gave personal guarantees to the banks as directors of the companies.

27.  There are three main areas of the facts where there are disputes between the parties: (1) who funded the purchase of the Property in 1993 and who owned it; (2) what happened in late 2005 leading to Madam Wu’s execution of the two documents in question; and (3) the events relating to the abortive sale of the Property in 2008 by Mr Hui. 

28.  I shall set out the facts chronologically below including my findings where the facts are in dispute.

Acquisition of the Property in 1993

29.  It is not in dispute that Madam Wu became registered owner of the Property which was purchased from a third party in 1993.  There is a dispute as to who funded the purchase price of $2,700,000.  Madam Wu and Mr Wang say that Mr Wang did, and that the Property was a gift from him to Madam Wu.  Mr Hui and Madam Wong say that she paid for the purchase.  They did not expressly say who became beneficial owner but from Madam Wong’s oral evidence it is clear she took the position that she did.

30.  The provisional sale and purchase agreement dated 23 March 1993 recorded that the initial deposit of $150,000 was paid by a specified cheque.  Mr Wang says this was his cheque, and this would appear to be inherently probable, since (as is not disputed) the property was identified by him, the purchase was handled by him and the provisional sale and purchase agreement was signed by him.  Moreover, while she produced a bank statement evidencing payment of the balance of the purchase price, Madam Wong did not produce any bank statement to show that the cheque for the initial deposit was drawn on her account.

31.  The second deposit of $120,000 was paid at the time of the formal agreement dated 1 April 1993. There is no documentary evidence to show who made that payment or how it was made.  Mr Wang says he also paid this deposit, whereas Madam Wong ultimately could not recall whether she paid it.  As will be seen below, I have serious misgivings about the credibility of Mr Wang’s evidence.  I am not prepared to accept his assertion that he paid this further deposit.  Equally, there is no evidence that Madam Wong paid this amount.  I therefore make no finding as to who funded this payment.

32.  The balance of the purchase price in the sum of $2,430,000, being 90% of the price, was payable on the completion date of 23 April 1993.  In evidence is a monthly statement of a bank account in the joint names of Madam Wong and her husband containing an entry that suggests that on 21 April 1993, the sum of $2,499,670 was debited from the account to pay for a casher’s order in that amount.  Madam Wong says that this cashier’s order was used to pay the balance of the purchase price of the Property.  Mr Wang did not dispute this.  I accept that the balance of the purchase price was paid for with funds from that account.  In submissions, counsel for Madam Wu pointed out that the cashier’s order was not for $2,430,000, but $69,670 more.  In my view, while there is no explanation from Madam Wong because she was not asked about this discrepancy, it is potentially explicable by the stamp duty and other expenses that had to be settled on completion. 

33.  Mr Wang, however, says the payment represented part of the dividends due to him from the profits of the business that he and Madam Wong were operating, which profits amounted to over $8 million at the time, and that he had asked Madam Wong to make that payment of the balance of the purchase price which would be treated as a distribution of dividends to him. 

34.  I find this assertion difficult to accept.  The business that they owned was operated by companies. No doubt these companies had bank accounts since they had credit lines with banks.  Had a dividend been due to Mr Wang, I cannot see why it would have been paid out of the joint account of Madam Wong and her husband rather than from the companies’ bank accounts.  Moreover, the financial reports of these companies were audited, and that would make it unlikely that the funds of the companies would be mixed in the private bank account of Madam Wong and her husband.  Nor had Mr Wang produced any financial statements of the companies to show the amount of profits available or dividends declared and distributed or, indeed, any documentary evidence of this arrangement, despite that Mr Hui had in as early as December 2009 stated in his Defence that the purchase price was paid for by Madam Wong by a cashier’s order.

35.  Moreover, had Mr Wang solely paid for the Property and given it to Madam Wu in 1993, he would have told Madam Wu about it then.  But Madam Wu says that Mr Wang only told her he paid for the Property when he suggested she move to live there, which was 2006.

36.  There is evidence that shows that Mr Wang was involved in the handling of the purchase of the Property.  Mr Wang held a power of attorney dated 1 April 1993 from Madam Wu on the strength of which he executed the formal sale and purchase agreement dated 6 April 1993 as well as the assignment dated 23 April 1993 on behalf of Madam Wu as purchaser.  A few months later, he collected the title deeds from the purchaser’s solicitors.

37.  Moreover, after the purchase of the Property, Mr Wang moved to live in the Property, with his son at first and later on his own, until about 2003 when he began to live mainly in mainland China.  This is in my view consistent with the good relationship at the time between Mr Wang and Madam Wong as siblings and perhaps even reflected the fact that Mr Wang made a contribution towards the purchase price in the form of the initial deposit.

38.  Two and a half years later, in November 1995, Madam Wu granted a mortgage of the Property in favour of HSBC as security apparently for the indebtedness of Mr Wang as borrower.  The impression that Mr Wang borrowed money on the security of the Property is however misleading.  In fact, as is common ground, the Property was mortgaged to HSBC as security, via the guarantee of Mr Wang (who was joint guarantors with Madam Wong and her husband)[1], for credit facilities granted to Donlake Fashions. 

39.  Furthermore, if Mr Wang had funded the purchase of the Property entirely and had given it to Madam Wu, so that Madam Wong had no interest in it whatsoever, then the course she adopted in 2005 when HSBC proposed to terminate the banking relationship with Donlake Fashions would not make sense.  I shall presently elaborate on this further.

40.  I have to say that the evidence on the funding issue is not entirely satisfactory.  Neither Madam Wu nor Mr Hui has personal knowledge of this matter.  Those with personal knowledge, that is, Mr Wang and Madam Wong, are not parties to the proceedings.  Documents which might have been discoverable had they been parties may not all have been available to the court.  I have seriously considered whether for these reasons I should refrain from making a finding on this issue altogether, but have ultimately come to the view that because it may potentially afford Mr Hui a defence against Madam Wu, I ought to deal with it, bearing in mind the shortcomings in the evidence.

41.  I have found Mr Wang’s evidence overall to be unsatisfactory in many respects.  I shall highlight some examples below in relation to later events.  Having regard to the inherent problems in his version as stated above and to the reservations I have on his credibility, I am not prepared to accept the assertion of Mr Wang. 

42.  In contrast, having considered the totality of the evidence, I am satisfied that Madam Wong is generally a truthful witness who gave her answers spontaneously.  Based on the documentary evidence of the bank statement, the inherent likelihood having regard to what happened when the HSBC mortgage was discharged in 2005, and my view on Madam Wong’s credibility, I am satisfied that the bulk of the purchase price, to the tune of 90%, was paid for by Madam Wong and that she regarded the Property as hers. 

43.  I therefore reject the assertion that Mr Wang had solely funded the purchase of the Property in 1993 and made a gift of it to Madam Wu there and then.

Release of Property from HSBC mortgage

44.  According to Madam Wong, in 2005, Donlake Fashions faced pressure from HSBC to repay all its indebtedness.  Accordingly, she and her husband decided to sell the two flats in Mei Foo Sun Chuen which had been mortgaged to HSBC and where Madam Wu had been living with their family.  The proceeds were enough to pay off the entire indebtedness to HSBC of some $2,650,000.  As a result, the mortgage in respect of the Property entered into in 1995 was released.  Her evidence is supported by the Land Registry records of the properties concerned, which show, inter alia, that a formal Release was executed by HSBC dated 30 September 2005 in relation to the Property.

45.  If, as is Madam Wu’s case, Madam Wong had no interest in the Property at all and she and Mr Hui had set out to cheat Madam Wu out of the Property, it would be surprising that Madam Wong should decide to sell her own home of over twenty years and redeem the mortgage over the Property.  Instead, Madam Wong, who was the person dealing with HSBC, could simply have allowed HSBC to enforce the mortgage against the Property and kept her own home.

46.  I should mention that in his evidence, Mr Wang stated that the release of the HSBC mortgage over the Property had nothing to do with Madam Wong, and claimed to have had no knowledge of the sale of the connected flats in Mei Foo Sun Chuen (even though that was where Madam Wu had been living).  He claimed to have had no knowledge of the affairs of the two companies by 2005, but said under cross-examination that he accidentally discovered the fact of the discharge of the HSBC mortgage when he happened upon a letter from HSBC in the companies’ office.  And yet he stated he did not concern himself as to what happened to the title deeds released by the bank.  I find his evidence unsatisfactory and I do not accept it.  First, his evidence that the release had nothing to do with Madam Wong was, on my finding, incorrect.  I also find it difficult to believe that Mr Wang would have been unaware of the sale of the connected flats given that this required Madam Wu to move.  Further, if, as is his evidence, he wanted Madam Wu to have the Property, his avowed indifference to what happened to the title deeds was very surprising indeed.

Mortgage of the Property to Wing Hang in 2005

47.  According to Mr Hui and Madam Wong, after the sale of the two properties in Mei Foo Sun Chuen, the companies still owed money to other creditors including Hang Seng Bank and it was necessary to find money to pay the debts.

48.  Madam Wong then came up with the idea of using the Property to borrow money to meet the financial difficulties.  As far as the precise mechanism is concerned, eventually she, with the agreement of Mr Hui, came to the conclusion that the Property should be transferred into his name and he would borrow a mortgage loan secured by the Property.  Madam Wong gave two reasons for adopting this structure.  First, Mr Hui had to be the borrower because among Madam Wong, Madam Wu and him, only he had a regular income that would be acceptable to a bank for the purpose of an application for a mortgage loan.  Secondly, Mr Hui was her son and she wanted him to have the Property.  I accept that these were what she had in mind at the time.

49.  Both Madam Wong and Mr Hui say that they discussed this proposal with Madam Wu.  In her witness statement, Madam Wu accepts that Madam Wong and Mr Hui talked to her about mortgaging the Property to borrow money for Mr Hui.  In her oral evidence she says that it was Mr Hui who spoke to her about this, not Madam Wong.  Her case remains that they did not tell her that the Property would be transferred to Mr Hui.

50.  On this point I accept the evidence of Madam Wong and Mr Hui and find that they did discuss the proposal with Madam Wu including that the Property would be transferred into the name of Mr Hui.  Madam Wu was Madam Wong’s mother and they had been living together in Mei Foo Sun Chuen for many years, where Madam Wu helped bring up Mr Hui.  Prior to the subsequent fall-out they had a very close relationship.  Madam Wu would have agreed to do what she could to help them.  Moreover, Madam Wu knew that she had not paid for the Property herself.  She might well have understood it to have been purchased with profits made by the family business.  So it would not be surprising that she agreed to use the Property to help.  Moreover, if she had not been told of the proposal to transfer the Property into Mr Hui’s name, she would have reacted differently when the documents were explained to her at the solicitors’ office – a topic which I shall deal with below.

51.  Madam Wu’s case in essence is that Mr Hui and Madam Wong combined to defraud her, telling her that she would mortgage the Property to secure a loan to Mr Hui but in fact procuring her signature to documents which would effect a transfer of the Property to Mr Hui.  This is a serious allegation tantamount to a charge of fraud.  I am far from satisfied that this is made out on the evidence.

52.  Moreover, if there were a fraud, it would have been a crude and indeed foolhardy one because Mr Hui and Madam Wong then took Madam Wu to a solicitors’ office, thereby risking exposure of their fraud by the solicitor who was to explain to Madam Wu what documents in fact she was being asked to sign, and because they subsequently permitted Madam Wu to move into the Property, thereby exposing themselves to the risk that Madam Wu would refuse to move out upon a resale of the Property.  I am satisfied that there was no such alleged fraud.

53.  In about late October 2005, Mr Hui approached Mr Chung, a manager of Wing Hang, with a view to obtaining a loan from Wing Hang for the purchase of the Property from Madam Wu.  The application was approved on 11 November 2005 when Wing Hang issued a facilities letter to Mr Hui.  I accept that when Wing Hang was approached for the loan, it was already intended to be a loan for the purchase of the Property from Madam Wu.

54.  Two solicitors firms then became involved: Messrs. Chan, Evans, Chung & To (“CECT”) who represented Mr Hui as purchaser and Wing Hang as mortgagee, and Messrs. Joseph Mok & Co (“JM”) who represented Madam Wu as vendor.  Madam Wu’s case is that she had no contact with her solicitors JM other than going to their office to execute the relevant documents.  This is not seriously disputed by Mr Hui or Madam Wong.  I find that Madam Wong was the person who liaised with JM on behalf of Madam Wu and with CECT on behalf of Mr Hui.

55.  By a letter dated 11 November 2005, CECT acting for Mr Hui as purchaser wrote to JM acting for Madam Wu as vendor, stating that subject to contract, Mr Hui was prepared to purchase the Property from Madam Wu, and asking for the title deeds and a draft agreement for sale and purchase of the Property.

56.  On 22 November 2005, JM sent CECT the title deeds as well as a draft agreement for sale and purchase of the Property.  The title deeds had been in the custody of Madam Wong after the release of the HSBC mortgage in September 2005.  She had probably caused them to be deposited with JM as vendor’s solicitors.

57.  On 28 November 2005, CECT sent JM the agreement for sale and purchase duly signed by Mr Hui, which was to be signed by Madam Wu.  CECT also sent JM a draft assignment and undertaking letter for JM’s approval, and asked JM for instructions on how the cheques for the balance of the purchase money were to be split.

58.  On 28 November 2005, CECT reported to Wing Hang that the Mortgage had been executed by Mr Hui and asked Wing Hang to transfer the sum of $1,715,000 to CECT’s account on the following day for the purpose of completion.

59.  Madam Wu signed a document dated 28 November 2005, prepared by JM, directing and authorising CECT to release part of the balance of the price in the sum of $500,000 to Hang Seng Bank for the account of Ever Sincere (Hong Kong) Limited.  Madam Wu has not expressly sought to disown this document but it would appear from her evidence that she also claims to have had no knowledge of the contents of this document.

60.  By a fax dated 29 November 2005, JM instructed CECT to split the cheques for the balance of the purchase price as follows: (i) $500,000 drawn in favour of Hang Seng Bank for the account of Ever Sincere (Hong Kong) Limited; (ii) $3,700 drawn in favour of JM being their costs and disbursements; and (iii) $1,167,950 drawn in favour of Madam Wu being the net balance.  This adds up to $1,671,650.  This, together with $43,350 being the profit costs and disbursements of CECT (including stamp duty), equals the proceeds of the loan from Wing Hang.

61.  On the same day of 29 November 2005, pursuant to JM’s instruction, CECT sent three cheques drawn by them on their clients’ account to JM with the particulars as directed by JM, against the undertakings set out in the draft undertaking letter approved by JM, including that JM should send CECT within 7 days the assignment duly executed by Madam Wu and attested.  CECT added in their letter that the sum of $778,350 (being $2,450,000 less $1,671,650) had been paid directly by the purchaser to the vendor and enclosed a copy of a confirmation letter dated 29 November 2005 prepared by CECT.

62.  The confirmation letter, signed by Madam Wu and Mr Hui, stated that “the balance of the Purchase money for HK$778,350.00” had been paid direct from Mr Hui to Madam Wu.  Mr Hui and Madam Wong readily admitted that they did not in fact pay this sum to Madam Wu.  Again Madam Wu has not expressly sought to disown this letter but from her evidence it appears that she also claims to have had no knowledge or understanding of the contents of this document.

63.  The sum of $1,167,950 was indeed paid into a bank account of Madam Wu on 1 December 2005.  Madam Wong accepted that the money was subsequently paid out by Madam Wu to her.  She said this was done by Madam Wu herself who alone was the signatory to her bank account.  Madam Wu did not make any suggestion to the contrary in her evidence.  I accept Madam Wong’s account on this matter.

What Madam Wu understood

64.  There is no dispute that on 29 November 2005, Madam Wu executed the Agreement and the Assignment at JM’s office.  The crucial question is what she was informed of and what she understood in relation to the documents.  On this point there is a remarkable departure in Madam Wu’s oral evidence from her case as set out in previously filed documents.

65.  In her first affirmation made on 20 July 2009 for the purpose of resisting the Originating Summons, Madam Wu, referring to what happened at the solicitors’ office, said “I could not really understand the contents of the legal documents explained to me” (my emphasis). 

66.  In her Defence and Counterclaim dated 20 November 2009, it is pleaded that Madam Wu “could not understand what was told to her by a person in the solicitors’ firm about the documents before her”.  The pleading was verified by a statement of truth signed by Madam Wu.

67.  In her witness statement dated 2 October 2010, it was expressly stated that at the solicitors firm, “someone explained the contents of the documents to [her]”, but she could not understand what they were, and when she was asked to sign those documents, Mr Hui told her they were for mortgaging the Property.

68.  The affirmation, pleading and witness statement each contains a statement at the end that a specified solicitor of Messrs. S. H. Chou & Co, the firm that acted for Madam Wu in these proceedings, had interpreted the document in question to her.  In all three documents, Madam Wu consistently admitted that the conveyancing documents were explained to her by someone in the solicitors’ (presumably JM’s) office, although she alleges she did not understand the explanation.

69.  This is at odds with her oral evidence given at trial.  Although Madam Wu adopted her statement as her evidence-in-chief, when she was asked during her evidence-in-chief, cross-examination and re-examination whether anyone explained to her what the documents were, each time she said adamantly that no one had explained the documents to her whatsoever.

70.  I bear in mind Madam Wu’s advanced age and the passage of time since the events in 2005 and am prepared to give allowance for minor discrepancies.  But given this fundamental inconsistency I do not think I can safely place any reliance on her evidence on this point.  Her memory of other events in 2005 is also hazy and confused and in my view unreliable.  One particular incident is that when Madam Wu had to vacate the connected flats in Mei Foo Sun Chuen in the summer of 2005, Madam Wong with the help of an estate agent Miss Fung found another flat in Mei Foo Sun Chuen for Madam Wu and she moved to live there until some time in 2006 when she moved to the Property.  This is supported by the evidence of Madam Wong and Miss Fung which I accept.  Madam Wu on the other hand insisted that she moved directly from the connected flats to the Property.  I have no hesitation in rejecting her evidence, which even her own counsel admitted was difficult to accept.

71.  Another major inconsistency between her oral evidence on the one hand and her witness statement and affirmation on the other is that in the former she suggested she did not understand the nature of a mortgage or the consequences of granting a mortgage over a property as security if the debt is not repaid, whereas in the latter she never gave that impression and indeed stated that she had intended to enter into a mortgage.

72.  Having considered all the evidence I reject Madam Wu’s assertion in her oral evidence that no one explained the documents to her.  The Agreement and the Assignment each contains a statement at the end, signed by a solicitor of JM called Lo Chun Lai Anny, that the document had been interpreted by her to the vendor, i.e. Madam Wu, and that it was executed by Madam Wu in her presence.  There is nothing to contradict that statement.  Nor has any reason been suggested why Miss Lo should have signed an untrue certificate.

73.  Secondly, even putting that certification on one side, it is in my view inherently unlikely that a solicitor would have attended to the execution of such important documents by an apparently unsophisticated old lady without so much as a broad explanation of what the documents were and without satisfying herself that the client understood, or at least acknowledged she understood, what she was signing.

74.  In their evidence, neither Mr Hui nor Madam Wong went into the topic of the explanation given by the solicitor.  This is entirely understandable since they, giving evidence before Madam Wu, did not know and could not have anticipated that Madam Wu would repudiate her written statements that someone at the solicitors’ office did explain the documents to her.

75.  Accordingly I find that the Agreement and the Assignment were explained or interpreted to her by a solicitor, Miss Anny Lo, at the solicitors’ office.

76.  Madam Wu’s pleaded case is that she could not understand what was explained to her at the solicitors’ office, and so turned to Mr Hui, who reassured her that the Property would be used as security for a mortgage loan, which he would repay.  Thereupon she signed the documents.  Her witness statement was to similar effect, suggesting that at the point in time when she was asked to sign the documents, Mr Hui told her the documents were for mortgaging the Property and that he would repay the loan.

77.  In her oral evidence at trial, however, Madam Wu said that no one gave her any explanation of the documents.  She stated she did not ask Mr Hui what the documents were, nor did he tell her.  When referred to the relevant sentence in her witness statement, she denies that Mr Hui said what the statement records he said.  Even in re-examination, she maintained that no one told her what the documents were.

78.  Given this evidence, I cannot find that Mr Hui made the alleged or indeed any representation to Madam Wu at the solicitors’ office about the nature or effect of the documents.  In any event, the version of events in Madam Wu’s pleading and witness statement is fraught with difficulties.  It is in my view highly unlikely that immediately prior to her signature, Mr Hui could have told Madam Wu that the documents were simply a mortgage of the Property.  They were at a solicitors’ office and in the presence of a solicitor who was attending to the execution of the documents and who had just explained the Agreement and Assignment to Madam Wu. Had there been such a misrepresentation by Mr Hui the solicitor would have corrected it.

79.  Did Madam Wu understand the explanation given by the solicitor Miss Anny Lo?  In my view, while I accept Madam Wu was unsophisticated and did not have any formal education, I have concluded, from her testimony in court, that the concept of sale and purchase was within her comprehension, as was the concept of transferring a property.  Further, it is inherently improbable that the solicitor who attended to the execution of the documents by Madam Wu, having explained the documents to her, did not satisfy herself that Madam Wu understood the general purport of the documents.  I think that Madam Wu at least acknowledged or gave the impression that she understood the general nature of the documents she was being asked to sign.  Madam Wu herself admits in her affirmation that she did not tell the solicitors’ firm that she did not understand the documents.

Events subsequent to the Mortgage

80.  In March 2008, Madam Wong and Mr Hui instructed estate agents to try to sell the Property.  The same estate agent, Miss Fung, who had helped Madam Wu look for a flat in 2005, was engaged.  She gave evidence that she took several potential purchasers to inspect the Property on a number of occasions in the first half of 2008.  Mostly it was Madam Wu who admitted them into the Property but sometimes Miss Wong Ka Wai, Mr Wang’s daughter, was also there.

81.  This stands in stark contrast to what Madam Wu says in her second affirmation (made in September 2009) and her witness statement (made in October 2010), namely, that “there were some potential purchasers trying to inspect the Property” but she refused to let them in.  Her case was that she never intended to sell the Property in 2008.  In her oral evidence she first said that Miss Fung came to the Property to visit her as a friend, and later said she came to the Property as she was bringing potential purchasers to see a similar flat above the Property.

82.  I find Madam Wu’s evidence on this aspect thoroughly unsatisfactory and have no hesitation in rejecting it. I accept the substance of the evidence of Miss Fung.  She is independent of the parties and not interested in the outcome of the litigation.  No reason has been advanced why she would come forward to give deliberately false evidence. The undisputed fact is that Mr Hui signed an agreement with third parties in June 2008 for the sale and purchase of the Property.  It is inherently unlikely that the purchasers had not inspected the Property prior to signing the provisional sale and purchase agreement.  If, as is highly probable, there had been inspection, then it is likely that it took place with the permission and in the presence of Madam Wu who was living there.

83.  Moreover, Miss Fung testified that in 2008, she also took Madam Wu to see some properties in the vicinity of the Property.  Madam Wong explained that this was done for the purpose of finding alternative rental accommodation for Madam Wu after the intended sale of the Property was completed.  I accept their evidence.  Madam Wu accepted that she saw one nearby property, but claimed that Madam Wong asked her to go and have a look as a leisure activity.  I reject Madam Wu’s evidence as being inherently incredible.

84.  If, as is her case, Madam Wu had no intention of selling the Property in 2008, and if she did not know the Property had by then been transferred to Mr Hui, surely she would have objected when it was proposed to her that intended purchasers be permitted to inspect the Property and that she should look for alternative accommodation. The fact, as I find it, that she willingly permitted inspection of the Property by intended purchasers and willingly went with Madam Wong and Miss Fung to look for a new flat to live in, fortifies the conclusion that she knew in 2008 that the Property had already been transferred to Mr Hui.

85.  Meanwhile, Mr Hui had entered into an agreement to borrow a sum of $300,000 from Eton and granted a second mortgage of the Property in favour of Eton.  Both documents were dated 26 May 2008.

86.  On 21 June 2008, Mr Hui entered into a provisional agreement to sell the Property for the price of $2,500,000.  The completion date was 1 September 2008.  It is clear that during the intervening period Madam Wu changed her mind.  She became opposed to the sale of the Property, so much so that she refused to move out before the completion date, which had to be postponed to 7 September.

87.  On 4 September, Mr Hui instructed solicitors to write to Madam Wu, Mr Wang and Miss Wong Ka Wai stating that they had been using the Property as licensees and requiring them to remove their belongings from the Property since he had sold the Property.  There was no reply to this letter.  On 6 September, when the purchasers went to inspect the Property, they were refused entry by Madam Wu and possibly by Miss Wong Ka Wai as well.  The sale inevitably fell through, as a result of which Mr Hui had to compensate the purchasers.

88.  Mr Hui said that during this episode in early September 2008, Mr Wang stated that if he was paid $600,000, he would procure Madam Wu to leave the Property. Mr Wang initially said he did not have such a conversation with Mr Hui.  After Mr Hui openly indicated that he had a recording in his possession to prove that demand, Mr Wang admitted that he did make a demand, but said that it was made via his younger brother, and was a demand for $600,000 to be paid to Madam Wu, not to himself.  I reject the evidence of Mr Wang.  He was evasive when asked about this incident.  His belated admission that he did make a demand was inconsistent with his evidence that he was only contacted by Madam Wu about the abortive sale after the event.  I was left with the distinct impression that Mr Wang was trying to distance himself from what happened in September 2008.  In contrast, I accept the evidence of Mr Hui who, in my view, felt genuinely indignant about this incident.

89.  Mr Hui defaulted in the repayment of the loan in early 2009, after which Wing Hang’s solicitors sent a letter to Mr Hui dated 20 February 2009 addressed to the Property, threatening that if the debt remained unpaid, the Property would be sold without further notice.

90.  This prompted a response on behalf of Madam Wu, in the form of a letter dated 21 March 2009 from Messrs. S H Chou & Co, which stated:

“It is our client’s instructions that Mr. Hui Chun Kit Benjamin holds the Property on trust for our client at all material times. Legal proceedings will be soon instituted against Mr. Hui to seek for the necessary declaration and/or other order of the Court.

However, our client has received your letter claiming Mr. Hui’s failure to settle mortgage payment, principal and/or interest.  In order to avoid litigation between your client and ours, we understand that our client is prepared to settle the same in full after she do have obtained the necessary order of the Court.”

91.  Wing Hang did not accede to Madam Wu’s request and, on 17 April 2009, issued proceedings by way of originating summons against Mr Hui.  Madam Wu repeated her stance in a subsequent letter of Messrs. S H Chou & Co dated 13 May 2009 but failed to avoid the litigation.

Madam Wu’s case of non est factum

92.  The plea of non est factum requires positive evidence before it can be established.  The evidence must show that Madam Wu’s consent to the documents in question was truly lacking.  On my findings above, the Agreement and the Assignment had been explained to her and, at that time, she was prepared to sign them knowing broadly what they were.  It follows that Madam Wu’s plea fails at the first hurdle. 

93.  Even if I accept Madam Wu’s oral evidence at trial, the plea cannot be established.  What she says in substance is that she simply signed the documents that she was asked to sign at the solicitors’ office, without knowing or trying to find out what they were. The plea of non est factum is not available to a person who appended her signature to a document in those circumstances: Gallie v Lee [1971] AC 1004, 1016D-E; Wing Hang Bank Ltd v Crystal Jet International Ltd [2002] 3 HKC 279, paragraph 41.

94.  A person can only rely on the plea of non est factum if he was not careless in signing the document in question.  It is for the person relying on the plea to prove that he took care.  The opposite party bears no burden of proof of want of care: Gallie v Lee, supra, p.1019E per Lord Hodson, 1027B-C per Lord Wilberforce.

95.  The standard of care in this context has necessarily to be subjective.  It must take account of the actual attributes of the signer.  But as Lord Wilberforce, referring to persons who are illiterate, blind or lacking in understanding, stated in Gallie v Lee, supra, at p.1027E-F, the law “will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents”.

96.  In the present case, while Madam Wu was of advanced age and did not have any formal education, she was not physically or mentally incapacitated.  She went to a solicitors firm, knowing that she was to sign some legal documents concerning the Property.  She knew that by appending her signature to the documents she was acknowledging those documents.  In my view, even if I were to accept her oral evidence, there would have been such want of care on her part in the execution of the documents as to preclude her from relying on the plea of non est factum.

97.  Counsel for Madam Wu argued that she might not have known that the lawyer present at the execution meeting was her lawyer whom she could consult, and so it could not be said that Madam Wu was careless in not consulting her.  I do not accept this argument.  If Madam Wu did not know what the documents were, it was incumbent upon her to ask the person or persons who asked her to sign, whether or not she knew the solicitor present was her solicitor.  On her oral evidence, she simply did not ask anyone.

98.  There is an additional requirement which I need not go into and that is that in order for the plea to succeed, there must be a fundamental difference between what Madam Wu actually signed and what she thought she was signing.  The required difference has been variously described as “radical”, “fundamental”, “serious”, “very substantial”, going to “the root of the matter”; in other words, the documents intended and the documents signed have to be “essentially different in substance or in kind”, or “totally different”: Gallie v Lee [1971] AC 1004, 1017C-E per Lord Reid, 1019A-B per Lord Hodson, 1021B per Viscount Dilhorne, 1026B per Lord Wilberforce, 1039B-C per Lord Pearson.  Whether the difference in any particular case is sufficiently great depends on all the circumstances of the case.  Given the conclusions above, it is unnecessary to decide whether, if Madam Wu thought she was signing a mortgage, there was a sufficiently great difference.

Madam Wu’s case of misrepresentation

99.  Madam Wu’s case of misrepresentation is that while at the solicitors’ office, Mr Hui misrepresented to her the nature of the documents she was being asked to sign. On the basis of my findings of what took place at the solicitors’ office, the case of misrepresentation does not even get off the ground because there is no credible evidence of the alleged representation.  My findings regarding what Mr Hui had told Madam Wu previously mean that there was no misrepresentation prior to the occasion of the execution of the documents either.

100.  In these circumstances, it is unnecessary to determine whether Wing Hang and Eton are bona fide mortgagees without notice.

101.  If there had been such misrepresentation as to render the Agreement and Assignment voidable, I would not have held that Madam Wu affirmed those documents by virtue of the two letters written Messrs. S H Chou & Co.  First, the use of the word “trust” was ambivalent and could have been loosely used to signify the contention that Madam Wu was the real owner.  It would be reading too much into that one word to say that it is incompatible with a case of non est factum.  Secondly, the statement that Madam Wu was prepared to settle the outstanding indebtedness under the Mortgage was made to avoid litigation with Wing Hang.  It is tantamount to an offer to compromise.  I do not think that Madam Wu can be taken to have elected, by making this statement, to affirm the Agreement and the Assignment.  Thirdly, that “offer”, being premised on Madam Wu first obtaining orders against Mr Hui to the effect that he held the Property for her, could not be regarded as an affirmation of the Agreement and Assignment, but at most a recognition that Wing Hang might have an interest in the Property which Madam Wu could not override.

Conclusions on the claims and counterclaims

102.  Madam Wu’s opposition to Wing Hang’s claim to the Property fails.  Wing Hang is accordingly entitled to succeed in its action for possession against both Mr Hui and Madam Wu.

103.  Madam Wu’s counterclaims are based entirely on the same pleas, and accordingly also fail.

104.  Mr Hui has no defence to Eton’s counterclaim.  Judgment will accordingly be entered in favour of Eton.  I note however that Mr Hui has never contested Eton’s claim.  In these circumstances it seems to me that the counterclaim has been a needless proceeding.

Whether Wing Hang’s costs as against Madam Wu covered by the charge

105.  A separate issue arises in relation to any costs that may be ordered in favour of Wing Hang against Madam Wu.  Understandably, Wing Hang is concerned that Madam Wu may be unable personally to meet a costs order against her and is therefore keen to be able to recover such costs from the Property.  The question that arises is whether the security provided by the Mortgage extends to such costs. 

106.  Wing Hang relies on the following clause in the Mortgage:

“17.01 The Borrower shall with the object and intention of affording to the Lender a full indemnity for all amounts actually disbursed or incurred by the Lender pursuant to the terms hereof pay or reimburse to the Lender … on demand:-

(i) …

(ii) all reasonable expenses (including legal expenses on solicitors own client basis) … incurred by the Lender in suing for or recovering any sum due from the Borrower to the Lender hereunder or in connection with the protection or enforcement of this security; and

(iii) …

and the same shall carry interest at the applicable rate as hereinbefore provided from the date of the same being incurred or disbursed until payment and all such costs, charges, expenses and remuneration and all interest thereon shall be a charge on the Property and shall form part of the Secured Indebtedness.”

107.  In my judgment, as a matter of construction, the costs incurred by Wing Hang in recovering the Property from Madam Wu and in resisting her counterclaim fall within the “expenses … incurred by [Wing Hang] … in connection with the protection or enforcement of this security”.  The phrase “in connection with” is of wide import and I can see no reason why this should not include the costs under consideration.  This is supported by the result in the leading case of Gallie v Lee, where the House of Lords held that a clause providing that all “moneys costs charges and expenses properly paid or incurred by the society under this mortgage or in relation to this security … shall be a charge on the mortgaged property” was applicable to the costs incurred by the building society as against the old widow Mrs Gallie: see Gallie v Lee (No. 2) [1971] AC 1039, 1045H-1046B.

108.  Moreover, the position at common law is that a mortgagee is entitled to recoup from the mortgaged property any costs, properly incurred, of proceedings between himself and a third party where what is impugned by the third party is the title to the estate.  The rationale is that in such a case the mortgagee acts for the benefit of the equity of redemption as much as for that of the security.  This is to be contrasted with a case where the third party impugns the title to the mortgage, or the enforcement or exercise of some right or power accruing to the mortgagee thereunder.  In such a case the costs are not recoverable out of the mortgaged property:Parker-Tweedale v Dunbar Bank Plc (No. 2) [1991] Ch 26, 33.

109.  Thus in Re Leighton’s Conveyance [1937] Ch 149, a person sought an order for the Land Register to be rectified on the basis that her transfer of the property to another person was induced by the latter’s fraud or was vitiated by the plea of non est factum, and that as a result, the charges created by the latter person over the property were void or to be set aside.  The trial judge upheld the claim of fraud, but held that the original owner was nevertheless subject to the charges.  On the question of costs, however, the Court of Appeal reversed the judge and held that the chargee was entitled to add the costs of the proceedings to the security because the owner had sought to impugn the title to the estate.  Lord Wright MR added at page 153 that the result would have been the same if the owner succeeded on a plea of non est factum. 

110.  The present case is also one where the third party (i.e. Madam Wu) has sought to impugn the title of the estate (i.e. Mr Hui’s title), as opposed to only the title of the security or the exercise of rights or powers by the mortgagee.  The position at common law is that Wing Hang is entitled to add the costs incurred vis-à-vis Madam Wu to the security.  I hold therefore that the costs as between Wing Hang and Madam Wu are covered by the security.

111.  This conclusion applies also to Eton both because of the common law position and because Eton’s mortgage contains similar provisions on costs and expenses.

Orders

112.  For the reasons set out above, I make the following orders:

(1)  judgment be entered in favour of Wing Hang against Mr Hui and Madam Wu for possession of the Property;

(2)  Madam Wu’s counterclaims against Mr Hui, Wing Hang and Eton are dismissed; and

(3)  judgment be entered in favour of Eton upon its counterclaim.

113.  I make the following order nisi on costs:

(1)  as between Mr Hui and Wing Hang, there be no order as to costs;

(2)  Madam Wu do pay Wing Hang’s costs of Wing Hang’s claim against her and her counterclaim against Wing Hang;

(3)  Madam Wu do pay Mr Hui and Eton costs of her counterclaim against them; and

(4)  there be no order of costs on Eton’s counterclaim against Mr Hui.