DEUTSCHE BANK AKTIENGESELLSCHAFT ALSO KNOWN AS DEUTSCHE BANK AG ACTING THROUGH ITS SINGAPORE BRANCH v. ORIENT PROFIT INVESTMENT LTD AND ANOTHER

HCMP 734/2024 and HCA 2072/2024

(Heard Together)

[2025] HKCFI 5308

HCMP 734/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 734 OF 2024

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BETWEEN

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AND

HCA 2072/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2072 OF 2024

____________________

BETWEEN

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(Heard Together)

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JUDGMENT

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I. INTRODUCTION

1.  Energy Garden Ltd (EGL) is a BVI company of which Ms Chan Mei Wan and Mr Samson Lam Yee Chun are shareholders and directors. Mr Samson Lam effectively controls EGL.

2.  Mr Samson Lam and Ms Chan Mei Wan are husband and wife. Mr Samson Lam was at all material times Executive Chairperson and director of VPower Group International Holdings Ltd, a Hong Kong listed company. Ms Chan has been (but no longer is) VPower’s Vice-Chairperson and non-executive director. She was also a member of VPower’s Audit and Remuneration Committees. She is the owner and controlling shareholder of the 2^nd Defendant (Orient Profit). Orient Profit owns four properties: (1) House C, Eden Gate, 5 Ede Road, Kowloon (mortgaged to HSBC), (2) Duplex Flat D on the ground and 1^st floors, Silver Crest, 75 Nga Tsin Wai Road, Kowloon (mortgaged to Bank of China (BOC)), (3) Flat 2D, Scholars' Lodge, 1 Derby Road, Kowloon Tong (mortgaged to BOC); and (4) Flat 3A, Stage 1, Prince's Heights, 277 Prince Edward Road West, Kowloon (previously mortgaged to BOC). The 2^nd mortgage in this case concerns the Silver Crest property.

3.  Given their background, one would expect Mr Samson Lam to be familiar with personal guarantees and how they operate and Ms Chan to be familiar with mortgages and how they operate.

4.  But Mr Samson Lam’s contends in HCA 2072/2024 (the HCA action) that he was wrongly induced by Deutsche Bank into causing EGL to open an investment account and loan facility with Deutsche Bank. Mr Samson Lam was “induced” because he says that, at the time when the account was opened, despite being the CEO of a listed company, he was in reality a neophyte when it came to investments and Deutsche Bank took advantage of his naiveté as an investor. He claims to have been enticed into signing a personal guarantee in Deutsche Bank’s favour by representations that the guarantee was only a formality. As collateral for the loan facility, Mr Samson Lam deposited 300 million VPower shares with Deutsche Bank. Mr Samson Lam claims that Deutsche Bank told him that so long as the collateral retained some value, the guarantee would not be enforced. Mr Samson Lam maintains that Deutsche Bank further represented that it would not call on him to deposit for more funds as security so long as the value of the VPower shares deposited with Deutsche Bank as collateral amounted to 45% of the monies loaned under the loan facility. In breach of those representations, Mr Samson Lam says that Deutsche Bank (1) demanded that EGL provide top up funds or security when the value of the VPower share collateral fell dramatically, (2) sought to reduce the LTV (loan-to-value) ratio between loan and the collateral from 45% to 0%, and (3) threatened to enforce the guarantee against Mr Samson Lam despite the VPower share collateral retaining some value. All the representations alleged by Mr Samson Lam would be unusual for a financial institution such as Deutsche Bank to be making. Together with default interest, EGL now owes Deutsche Bank about HK$62,711,449.71. In the HCA action, I must determine whether, despite the alleged representations being unusual, Deutsche Bank in fact made them and Mr Samson Lam’s personal guarantee should not be enforced against him in consequence.

5.  On her part, Ms Chan contends that the 2^nd mortgage over Orient Profit’s Silver Crest property as security for Deutsche Bank’s loan facility to EGL should not be enforced. This is because (Ms Chan alleges) Mr Samson Lam exercised undue influence on her when she signed the 2^nd mortgage on Orient Profit’s behalf. According to Ms Chan, because of the tremendous pressure exerted upon her by Mr Samson Lam, she signed the execution page of the 2^nd mortgage not knowing what the document was. Once signed, Mr Samson Lam is said to have whisked away the document without giving Ms Chan a chance to read it. Ms Chan claims that, but for the pressure applied by Mr Samson Lam and had she understood what she was being asked to sign, she would never have consented to the 2^nd mortgage. There is no dispute that Ms Chan signed the 2^nd mortgage without lawyers present to explain the document before her execution. Nor is there any dispute that the Deutsche Bank staff who dealt with Mr Samson Lam in connection with the 2^nd mortgage never met Ms Chan prior to the document’s execution. In HCMP 734/2024 (the HCMP action), Deutsche Bank claims against EGL for outstanding loan monies and seeks to enforce the 2^nd mortgage. I must decide whether the 2^nd mortgage is unenforceable due to undue influence exercised by Mr Samson Lam on Ms Chan.

6.  At the trial of this action, Deutsche Bank and Orient Profit were represented by lawyers. EGL was unrepresented. It did not obtain permission from the Registrar to be represented by a director (such as Mr Samson Lam). Mr Samson Lam appeared in person in the HCA action. Mr Samson Lam was a witness in the HCA and HCMP actions. Deutsche Bank called three officers (Ms June Wong (Head of Lending Wealth Management, Asia Pacific), Mr Jackie Lit (Managing Director, Market Head, Hong Kong Market, Wealth Management) and Mr Ray Lam (Vice President of Private Bank Lending) as its witnesses. Although EGL was unrepresented, I afforded Mr Samson Lam with the opportunity to examine witnesses in the HCMP action.

II. BACKGROUND

7.  At the VPower was incorporated in 2001 and listed in 2016. EGL holds around 70% of VPower shares. Ms Chan became VPower’s Vice-Chairperson in 2001. Following VPower’s listing, in addition to her position as Vice-Chairwoman, Ms Chan was a VPower non-executive director, a member of VPower’s Audit Committee, and a member of VPower’s Remuneration Committee. She resigned from those positions on 5 December 2023, only remaining as director of “various subsidiaries” of VPower. EGL was incorporated in the BVI in March 2016. Mr Samson Lam holds 60% shares of EGL. Ms Chan indirectly holds a 20% interest in EGL through her shareholdings in Konwell Development Limited and Classic Legend Holdings Limited (both BVI companies). Classic Legen is a company controlled by Ms Chan. Mr Samson Lam and Ms Chan were directors of EGL at all material times. Orient Profit was incorporated in Hong Kong on 9 August 2004. Ms Chan uses Orient Profit to hold her properties and handle her personal investments.

8.  Between May and June 2020, Mr Samson Lam met Mr Lit of Deutsche Bank.

9.  On 7 October 2020, Mr Samson Lam and Ms Chan, acting on EGL’s behalf, signed a Security Agreement with Deutsche Bank, setting up an account for investments in securities. As collateral for the investment account, EGL pledged 300 million VPower shares to Deutsche Bank. The Security Agreement stated that it was being executed in consideration of Deutsche Bank:

“making or continuing to make available … credit and banking facilities or other accommodation or entering into contracts for the sale and purchase of currencies (whether spot, forward or otherwise) or entering into treasury, derivative and other transactions with [EGL] … including but not limited to swaps, options and forward contracts relating to interest rate, currency, equity or commodity risk from time to time to such extent and for so long as you may think fit to [EGL].”

10.  On By a Facility Letter dated 12 January 2021, Deutsche Bank extended loan facilities to EGL. The Facility Letter was supported by Mr Samson Lam’s personal guarantee dated 11 December 2020. The Facility Letter stated that any drawdown would be at Deutsche Bank’s absolute discretion, that the loan facility could be terminated at any time at Deutsche Bank’s discretion, and that Deutsche Bank would have the right to set and amend at its discretion the value to be ascribed to collateral provided in connection with the loan facility. Deutsche Bank agreed an initial LTV ratio of 45% in respect of the 300 million VPower shares put up by EGL as collateral.

11.  The share price of VPower began falling precipitously thereafter. On 2 November 2021, when the share price of VPower dropped below HK$1.50, Mr Lit informed Mr Samson Lam that Deutsche Bank was considering lowering the LTV ratio to 0%. After a discussion between Deutsche Bank and Mr Samson Lam over the telephone on 5 November 2021, Deutsche Bank kept the LTV ratio at 45% on condition that the LTV Ratio would be reduced to 40% or even 0% if the share price of VPower fell between HK$1.50 and HK$1.00. On 12 January 2022, VPower’s share price went below HK$1.50. Deutsche Bank reduced the LTV ratio to 40%. On 4 March 2022, VPower’s share price dropped below HK$1.00. At Mr Samson Lam’s request, Deutsche Bank kept the LTV ratio at 40% on condition that EGL or Mr Samson Lam paid off US$1 million of the outstanding loan monthly between March and August 2022. Deutsche Bank intimated that the LTV ratio would be reduced to 30% or even 0% if VPower’s share price fell between HK$0.80 and HK$0.50.

12.  VPower’s share price continued to fall. In March, April and September 2022, Deutsche Bank issued four margin calls, demanding that EGL make good the shortfall between the value of VPower share collateral and the outstanding loan owed by EGL. On 21 December 2022, Mr Lit asked Mr Samson Lam over the telephone to inject money into EGL’s investment account or to mortgage properties as further security for the loan monies outstanding.

13.  On 4 January 2023, Deutsche Bank and Mr Samson Lam discussed the possibility of a 2^nd mortgage over Orient Profit’s Eden Gate property as security. However, Mr Samson Lam said that his wife was worried that a 2^nd mortgage would constitute a breach of the existing 1^st mortgage in HSBC’s favour. Ms Chan was afraid that HSBC might then call in the outstanding amount under its 1^st mortgage. Mr Samson Lam mentioned that Ms Chan had sought legal advice about the matter as she did not believe what Mr Samson Lam had told her about the proposed 2^nd mortgage in Deutsche Bank’s favour. Mr Samson Lam referred to “fierce arguments” between himself and his wife over a 2^nd mortgage of the Eden Gate property. As a comfort to Ms Chan, Mr Ray Lam suggested including a limited recourse clause in the 2^nd mortgage.[1] Under that clause, there would be no personal liability on the part of Orient Profit or Ms Chan in the event that Deutsche Bank enforced the 2^nd mortgage, if the proceeds from any sale of the Eden Gate property proved insufficient to pay off the outstanding loan. Mr Lit observed that Deutsche Bank could get its senior management to clarify matters with Ms Chan. Mr Samson Lam responded that Ms Chan was a person who liked have matters down in writing and suggested that he instead first speak to his wife that evening and revert to Deutsche Bank later.

14.  On 12 January 2023, Deutsche Bank and Mr Samson Lam had another phone call. Mr Samson Lam noted that Ms Chan had warned him about opening an investment account. She had been reluctant to engage in private banking matters and was not keen to mortgage Orient Profit’s property as security for Mr Samson Lam’s investments. Mr Samson Lam mentioned “pressing” and forcing” his wife to agree. But his wife had not budged. Consequently, Mr Samson Lam counter-proposed to mortgage the Silver Crest property (which had a lower value to the Eden Gate property) in lieu. He said his wife was prepared to agree a mortgage of the Silver Crest property. Mr Lam commented that, in getting to that point with his wife, his relationship with her almost went through a breakdown. Mr Ray Lam stated that it would take about a month to prepare a 2^nd mortgage document for the Silver Crest property. Ms Chen would then have to go to Deacons (Deutsche Bank’s solicitors) to sign the document. Mr Ray Lam observed that this was because Deacons needed to meet Ms Chen to make sure that she knew what she was signing.

15.  By an Amendment Letter dated 13 January 2023, Deutsche Bank extended the loan facility available to EGL, but for the reduced amount of US$13 million.

16.  The Amendment Letter was supported by an undated board resolution signed by Mr Lam and Ms Chan. The board resolution referred to the Security Agreement dated 7 October 2020 and the Facility Letter dated 12 January 2021. It recited that, in consideration of Deutsche Bank agreeing to extend EGL’s loan facility, Deutsche Bank required EGL to enter into the Amendment Letter and an amended Security Agreement. The purpose of the board resolution was thus to consider and, if thought fit, to approve the Amendment Letter and amended Security Agreement. The board resolution further recorded that, having considered and noted the terms of the various documents and after due deliberation, it was unanimously resolved that (1) the entry into the relevant documents was for the commercial benefit and in the best interests of EGL, (2) there was full and fair consideration for EGL’s execution of the documents, (3) the terms and conditions of, and the transactions contemplated by, the documents were approved, (4) any EGL director was authorised (a) to negotiate the terms of, execute, and deliver the documents subject to such amendments as that director might consider appropriate, and (b) to affix EGL’s seal to the documents. The resolution added that:

“The execution of the Documents by any one director of the Company shall be conclusive evidence of such person’s approval of any amendments which may have been made to such documents; and any action taken by any one director of the Company in respect of the transactions prior to the execution of these resolutions is approved, ratified and confirmed in all respects.”

17.  EGL issued a second board resolution dated 17 February 2023 signed by Mr Lam and Ms Chan as EGL’s directors. This second resolution referred to the undated first resolution described in [16] above, stating that the latter had been passed on 14 January 2023. The second resolution noted that in consideration of agreeing to continue to extend EGL’s loan facility and pursuant to the Amendment Letter, Deutsche Bank required Orient Profit as mortgagor and EGL as borrower to enter into a 2^nd mortgage over the Silver Crest property.

18.  Ms Chan signed the 2^nd mortgage dated 17 February 2023 whereby the Silver Crest property was mortgaged to support Deutsche Bank’s loan facility. The 2^nd mortgage was supported by a written resolution of Orient Profit, signed by Ms Chan as sole director, authorising Orient Profit’s execution of the 2^nd mortgage.

19.  It is Ms Chan’s case that, despite her roles in VPower Group, she placed all trust on Mr Samson Lam as her husband in relation to all financial matters. In late 2022 or early 2023, Mr Samson Lam asked Ms Chan to execute a 2^nd mortgage over the Eden Gate property to increase EGL’s credit line with Deutsche Bank. Ms Chan says that she refused to do so. Later, Mr Samson Lam asked Ms Chan to mortgage the Silver Crest Property to increase EGL’s credit line with Deutsche Bank. According to Ms Chan, Mr Samson Lam repeatedly told her that, even if Silver Crest property was mortgaged, the power to repossess it vested solely with BOC as first mortgagee. Ms Chan claims to have been told by Mr Samson Lam that the 2^nd mortgage was only intended to enable Deutsche Bank’s staff to explain to upper management why EGL’s credit was being extended.

20.  Ms Chan is adamant that she all along disagreed. However, she says that, after Mr Samson Lam’s “repeated and incessant demands and pestering", she gave in and agreed to re-mortgage the Silver Crest property. Thereafter, Ms Chan says, Mr Samson Lam demanded that she sign a pile of undated documents with blank signature fields. One of the pile of documents turned out to be the 2^nd mortgage. Briefly skimming through the documents, Ms Chan noticed references to “guarantor” and objected to being a guarantor. Mr Lam reassured Ms Chan that the words were just semantics. Mr Samson Lam is alleged to have become impatient and to have repeatedly hurried Ms Chan to sign the documents handed to her. Mr Samson Lam is said to have “sworn” at Ms Chan and to have “heavily slammed the documents onto the table, exclaiming ‘Would I lie to you’”. According to Ms Chan, Mr Samson Lam complained: “It’s getting late. I need to sleep. Just quickly sign it now”. As a result, Ms Chan felt a “tremendous amount of pressure” and signed the documents given to her by Mr Samson Lam without appreciating what they were.

21.  Ms Chan contends that Mr Samson Lam assured her that it was not necessary to sign the documents at a law firm and that Ms Chan could simply sign the documents at home. Ms. Chan says that this assurance confused her, since in the past lawyers had been present to explain to her the legal effect of any mortgages that she was signing. Accordingly, because Mr Samson Lam said that the presence of lawyers was unnecessary, Ms. Chan claims that she did not realise that the pile of documents she was signing involved a 2^nd mortgage over the Silver Crest property.

III. DISCUSSION

A. The HCA action

A.1 Mr Samson Lam’s credibility as a witness

22.  I am unable to take any of Mr Samson Lam’s evidence at face value where that evidence is not backed up by contemporaneous documents.

23.  There is not a shred of evidence in that contemporaneous documentation that Deutsche Bank made the oral representations alleged by Mr Samson Lam and summarised in [4] above. One would expect, if the alleged representations had been made, that Mr Samson Lam would strongly complain to Deutsche Bank in writing about their contravention. But no written complaint was ever made about Deutsche Bank’s margin calls or Deutsche Bank’s proposed changes to the LTV ratio following VPower’s falling share price. Instead, there are audio records of discussions between Deutsche Bank and Mr Samson Lam (such as those summarised in [13] and [14]) in which Mr Samson Lam accepts that substantial sums are due under EGL’s facility as a result of VPower’s declining share price and that the shortfall needs to be covered by the provision of additional security. In a conversation with Deutsche Bank on 12 January 2023, Mr Samson Lam himself is recorded as saying “我亦都有PG 係到” (“I also have a PG [personal guarantee]” here) and “我亦都有PG，唔好當我係垃圾。PG，我Samson 都係有資產係到。” (“We also have a PG, don’t treat me like trash. PG, I Samson also have assets.”). All this suggests that, in accordance with the express terms of the Facility Letter and the personal guarantee, Mr Samson Lam was fully aware that (1) the LTV ratio could be altered at Deutsche Bank’s absolute discretion and (2) the personal guarantee was enforceable against him regardless of the value of the VPower share collateral.

24.  Mr Samson Lam originally pleaded in his Defence that Deutsche Bank would not enforce the personal guarantee against him at all. In other words, the guarantee was supposed to be a mere procedural formality. Later, Mr Samson Lam amended his Defence to plead that what Deutsche Bank had represented to him was that the guarantee would not be enforced “so long as the ListCo Shares [that is, VPower] remained valuable” and Deutsche Bank “would only enforce against the ListCo shares pledged by [EGL] in the Account first, before enforcing the personal guarantee”. Thus, in contrast to what had previously been alleged, the personal guarantee was no mere formality. When the Defence and amended Defence were prepared, Mr Samson Lam was legally advised and represented. There has been no explanation why his case changed from the guarantee not being enforceable to the guarantee being enforceable subject to a condition precedent. This lack of explanation reinforces my doubts as to the reliability of Mr Samson Lam’s evidence.

25.  Mr Samson Lam made wild allegations, in his pleading and at trial, about the role played by Mr Ambrose Lee. Mr Lee was VPower’s Chief Strategy Officer and Head of Capital Markets/Corporate Finance until his resignation in June 2022. Mr Lee acted as Mr Samson Lam’s go-between in communications with Deutsche Bank. Nonetheless, Mr Samson Lam has maintained that somehow Mr Lee acted as Deutsche Bank’s representative in inducing Mr Samson Lam to execute the Facility Letter and personal guarantee. Asked in court on what basis he maintained that Mr Lee was acting on behalf of Deutsche Bank rather than as his own agent, Mr Samson Lam was reduced to saying that the agency arose because Mr Lee and Mr Lin were close friends. This is nonsense as a matter of law. But what it illustrates is a propensity on Mr Samson Lam’s part to say whatever may be expedient (whether or not true or accurate) whenever he finds himself in a difficult position. This is a further red flag, indicating that the Court should treat Mr Lam’s evidence with circumspection.

A.2 Did Deutsche Bank make the alleged representations?

26.  When tested against the contemporaneous documentation, Mr Samson Lam’s testimony must be rejected. Apart from Mr Samson Lam’s assertion, there is no evidence at all that the representations as to the non-enforceability or conditional enforceability of the guarantee or the immutability of the LTV ratio at 45% were ever made. On the contrary, the wording of the Security Agreement, the Facility Letter and the personal guarantee (as signed by Mr Samson Lam) are all contrary to the alleged representations.

A.3 Miscellaneous complaints by Mr Samson Lam

27.  Mr Samson Lam suggests that Deutsche Bank took advantage of his naiveté about financial investments. At trial, Mr Samson Lam repeatedly asked Deutsche Bank’s witnesses about the following comment in the Know-Your-Client (KYC) form dated 20 October 2020 which Deutsche Bank prepared internally when EGL’s investment account was opened: “Mr and Mrs. Lam focus on business development and does not do much financial investment. They would use DB to kick start to try financial investment.” Mr Samson Lam suggested that this statement established that Deutsche Bank knew from the outset that he was out of his depth when it came to financial investments, but Deutsche Bank nonetheless allowed him to open an investment account and engage in risky financial investments. However, the KYC form also remarked of Mr Samson Lam and his wife:

“Both have good knowledge on all of DB products they are interested in. RM [Relationship Manager] considers the risk profile score of clients' current investment profile (CIRP) reasonable and they have over 5 years investment experience on those investment products specified in CIRP and they will be responsible for making the investment decision of the account.”

The KYC form went on to say that Mr Samson Lam was interested in, among other investments, "Bonds/Equities, Mutual funds/Hedge Funds, Structured Notes, Foreign Exchange". I am therefore unable to infer from the sentence highlighted by Mr Samson Lam that, when opening EGL’s investment account, he had no idea about financial investments. Read as a whole, the KYC form indicates that he had some knowledge of financial investments and was interested in a range of relatively sophisticated financial products.

28.  Mr Samson Lam submits that Deutsche Bank should have first enforced against EGL as borrower under the Facility Letter, before having recourse to his personal guarantee. There is nothing in this complaint. Deutsche Bank was entitled to enforce the guarantee against Mr Samson Lam, regardless of whether proceedings were first taken against EGL. This is apparent from clause 4.2 of the guarantee:

“The Guarantor(s) waive(s) all rights of subrogation and contribution and any rights which it may have to claim prior exhaustion of remedies by the Bank and agrees that demands under this Guarantee may be made from time to time irrespective of whether any steps or proceedings are being or have been taken against the Customer, and/or any other person or are being or have been taken to enforce any other security, guarantee, indemnity, right, remedy or lien.”

29.  Mr Samson Lam says that Deutsche Bank ought to have started selling the VPower shares held as collateral sooner. In that way, Deutsche Bank could have (Mr samson Lam submits) sold the shares at a higher price. I am unable to understand this submission. Deutsche Bank was holding onto 300 million VPower shares as collateral. If Deutsche Bank sold all of those shares at once, the price of VPower would collapse. That would not be in Deutsche Bank’s interest as holder of a substantial block of VPower shares. Nor would it be in the EGL’s or Mr Samson Lam’s interest as major VPower shareholders. The evidence is that, for some time, VPower shares have been illiquid on the market. So that it would only be possible to sell at most several thousand shares (if any) on any day. In practical terms, it would take years for Deutsche Bank to liquidate its collateral of 300 million VPower shares, without significantly disrupting the market for the same. Further, insofar as enforcement of the personal guarantee against Mr Samson Lam is concerned, clause 20 of that instrument provides:

“This Guarantee shall remain valid notwithstanding that and the Guarantor(s) shall not set up a defence that the Bank or any agent thereof has in any way acted improperly or negligently in respect of any property belonging to the Customer so as to diminish the value of the said property or to realise a value lower than would have been realised if the Bank or its agent had acted with due care and skill.”

30.  Upon EGL defaulting on its loan, Deutsche Bank started imposing default interest on a compound basis. Mr Samson Lam argues that the default interest constitutes a penalty. The default interest comprises Deutsche Bank’s “costs of funds” (COF) plus 10%. According to the Service Agreement (referred to in the Facility Letter), the COF in relation to a loan and loan period is a rate determined at Deutsche Bank’s discretion, taking into account the rate at which the loan amount would be offered to Deutsche Bank by prime banks in the Hong Kong and Singapore inter-bank market for a similar loan period. Default interest has been charged since 20 April 2024. Between that date and 2 August 2024, Deutsche Bank’s COF has fluctuated between a low of 4.2% and a high of 5.0%. Since 2 August 2024, Deutsche Bank’s prime rate has been higher than its COF and the prime rate has been adopted as the applicable COF payable by EGL to Deutsche Bank. Between 2 August 2024 and the present, Deutsche Bank’s COF or prime rate has ranged between 5.0% and 5.875%. It is currently at around 5.125%. Applying the test in Cavendish Square Holding BV v Makdessi [2016] AC 1172, I am unable to regard the default interest charged (COF + 10%) as “evidently extravagant”. I do not find that the default interest being charged “imposes a detriment… out of all proportion to any legitimate interest of [Deutsche Bank] in the enforcement of the primary obligation”. Although each case must be considered on its facts, I note purely by way of a crude comparison that the Hong Kong court has previously upheld a 5% per month default interest (Incorporated Owners of Winner Building v Wai Mau Sze (HCA 20180/1998 & HCA 7564/1999, 2 June 2006), at §93) and a 26.8% per annum default interest (South China Strategic Ltd v Celsion Corp (HCA 9963/2000, 7 August 2001) at §13).

A.4 Is the personal guarantee enforceable?

31.  It follows that the personal guarantee is enforceable against Mr Samson. There is nothing unconscionable about Deutsche Bank’s enforcement of the guarantee.

B. The HCMP action

B.1 Undue influence generally

32.  To establish undue influence, a defendant must show that (1) the alleged influencer had capacity to influence the defendant, (2) influence was actually exercised, (3) such exercise was undue, and (4) such exercise resulted in the impugned transaction. See Bank of China v Wong King Sing [2002] I HKLRD 358 §38 and Vinson Finance Limited v Chu Qingzhu [2022] HKCFI 449 §32).

33.  Husband and wife typically repose mutual trust and confidence in each other. That is not enough to establish that, whenever a wife does what a husband asks her to do, that the wife acted under the husband’s undue influence. There is no automatic presumption of undue influence merely because a case involves a husband-and-wife relationship. Undue influence connotes some form of impropriety. Thus, when assessing a husband’s statements or conduct, so long as such behaviour does not go beyond the bounds of what may be expected of a reasonable husband in the circumstances, the court should not characterise the same as undue influence (Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773, at §32. Difficult discussions between husband and wife, even heated exchanges between them, are a fact of daily life. Such matters will not be sufficient to constitute the exertion of undue influence by the former over the latter. Something more -- positive misrepresentation, excessive pressure, emotional blackmail or bullying -- has to be proved before the court can infer that a husband has exerted undue influence over a wife and thereby constrained the exercise of the wife’s free will (Etridge (No.2), at §§160, 221). Mere pressure applied by a husband to persuade a wife that an unattractive course of action may nonetheless be in their best interest or that of the family, would not justify a finding of undue influence. It must be shown that the husband’s pressure was excessive, leading to the wife’s will being overcome without her reason being persuaded.

B.2 Ms Chan’s credibility as a witness

34.  I am unable to treat Ms Chan as a credible witness. It seemed to me that Ms Chan was prone to embellish her evidence, to convey an impression of her will being overborne by her husband’s attempts to persuade her to sign various documents.

35.  According to Ms Chan, from 2020 to 2023, she executed blank signature pages of (1) account opening documents, (2) the Security Agreement, (3) EGL and Orient Profit board resolutions, and (4) the 2^nd second mortgage, without insisting on seeing a complete set of documents, going through them, and understanding their content. That strains credulity, given the documents concerned VPower’s shares held as collateral by Deutsche Bank, Ms Chan’s various positions in VPower before and after listing, Ms Chan’s significant direct and indirect shareholdings in VPower, and Ms Chan’s interest in EGL.[2] Mr Samson Lam characterised Ms Chan in the course of his discussions with Deutsche Bank staff as someone who did not believe what he told her but always insisted in seeing things in writing. I believe that to have been an accurate description. In my view, Ms Chan normally insists on reading a document before signing the same. It makes no difference whether a document is being proffered for her signature by her husband or someone else. She carefully goes through a document before signing and only signs if she agrees with the contents of the same.

36.  If Ms Chan is to be believed, she signed all relevant EGL and Orient Profit board resolutions on 16 February 2023 under tremendous pressure from her husband. But that cannot be true. She signed an EGL board resolution on 11 December 2020, accepting Deutsche Bank’s credit facilities (see [9] above) and an EGL board resolution on 14 January 2023 acknowledging the Amended Facility Letter whereby EGL was to procure a 2^nd mortgage over the Silver Crest property within five weeks (see [16] above).

37.  Ms Chan claimed that she only knew when she signed the Security Agreement that EGL was opening an investment account, without knowing that the account was being opened with Deutsche Bank or realising that it was to be a single stock investment account holding 300 million VPower shares as collateral. At trial, she went further, suggesting that she was only provided with the signature page of the Security Agreement and had no idea what the document she was signing was about at all. In response to my questions about the Security Agreement, Ms Chan responded thus:

Court: Your evidence is that you have never seen the document when you signed it.

Ms Chan: Correct, that’s why I don’t have any recollection.

Court: Your evidence is you didn’t know what the content of the document is about, because you didn’t read it.

Ms Chan: Yes, correct.

Court: The reason why you didn't bother to read it is because your husband showed the document to you and after you signed it he took it away.

Ms Chan: I did ask my husband what kind of documents are these, he simply said that these were bank account opening documents, then I signed.

38.  But, in her affirmation dated 26 September 2024 in these proceedings, Ms Chan did not mention anything about only being provided with the signature page of the Security Agreement and being denied sight of the contents of the document. The affirmation instead deposed:

“17. Samson had previously told me that he wanted to open an investments account through Energy Garden, and asked me to sign some related documents including an agreement dated 8 October 2020, which is now produced and shown to me marked Exhibit CMW-1 [that is, the Security Agreement]. I recall that prior to signing this document, the name ‘Energy Garden Limited’ was stated thereon (see page 7), but the document was undated.

18. Samson had never notified or consulted with me before the opening of the investment account for Energy Garden, or regarding the details of such investments, such as the items, methods, or type of investment, or the borrowing amounts. All I knew was that these investments had nothing to do with the business of VPower Group.

19. At that time, I pointed out to Samson that these investments were extremely risky and warned him that prior to making any investments, he had to be careful in the family. As our three children were still teenagers and students at the time, they were and would still be at school for some time, and had a long way to go before they complete their education. The family was also incurring a lot of expenses. Upon hearing these, Samson appeared to agree.”

The thrust of the paragraphs quoted is that Ms Chan knew full well that the Security Agreement was about opening an investment account for EGL. She disapproved of Mr Samson Lam opening such account and warned him to be careful.

39.  Consequently, I am unable to accept Ms Chan’s evidence at face value unless corroborated by contemporaneous documents.

B.3 Did Mr Samson Lam exert undue influence on Ms Chan to sign the 2^nd mortgage?

40.  Going by the contemporaneous documents, Ms Chan’s account of undue influence does not stand up to scrutiny. As Mr Jenkin Suen SC for Deutsche Bank points out, the following matters suggest that Ms Chan was fully cognisant at all times of what was going on in connection with the EGL investment account:

(1) On 11 and 18 September 2020, Ms Natalie Yip of VPower forwarded to Deutsche Bank certified copies of the Hong Kong IDs of all EGL’s beneficial owners including Ms Chan. Ms Yip also sent a copy of Ms Chan’s passport, proof of Ms Chan’s residential address, and a copy of the Certificate of Incumbency and Memorandum & Articles of Association of Classic Legend. It is unlikely that Chan was unaware that these supporting documents were being provided to Deutsche Bank or did not know why the documents were provided.

(2) On 7 October 2020, Ms Chan signed the Security Agreement. She would have known from reading the document that it was an agreement to provide security for a loan facility. Since the only assets that EGL had at the time were its VPower shares, she would have realised that the security to be provided would consist of EGL’s VPower shares. She would have seen that the bank involved was Deutsche Bank.

(3) On 11 December 2020, Ms Chan executed EGL’s board resolution accepting the credit facilities being provided by Deutsche Bank to EGL. Ms Chan accepted in cross-examination that, as a director, she should have read EGL’s board resolution and Deutsche Bank’s Offer Letter of 8 December 2020, mentioning the facility amount and the pledging by EGL of 300 million VPower shares as collateral. Ms Chan must have realised that, if EGL defaulted and Deutsche Bank enforced against the VPower shares, there would be a massive drop in the VPower’s share price, adversely affecting her interests.

(4) Between 20 September and 8 October 2021, EGL purchased shares in VPower by drawing loans from Deutsche Bank. This resulted in an increase in the interests of Mr Samson Lam and Ms Chan in VPower. A disclosure of the increase was made public, since VPower is a listed company. At trial, Ms Chan accepted that she knew about the increase, although she claims to have learned about this only later. Since EGL had no operating business and the only loan monies available would have been from Deutsche Bank’s facility, Ms Chan must have realised that the source of EGL’s financing for the purchase of VPower shares must have been Deutsche Bank’s loan facility.

(5) On 14 January 2023, Ms Chan signed the EGL board resolution approving the Amendment Letter under which EGL agreed to procure a 2^nd mortgage over the Silver Crest property. According to the Amendment Letter, the 2^nd mortgage was to be given by Orient Profit in Deutsche Bank’s favour to secure EGL’s liabilities. As a director, Chan would have read the resolution and Amendment Letter.

41.  In my view, Ms Chan actually went through the documents enumerated in [40(2), (3) and (5)]. If so, Ms Chan knowing the background and realising perfectly well what her husband was demanding of her in connection with the signing of the 2^nd mortgage, I am unable to conclude that she executed the 2^nd mortgage as a result of undue influence exerted by her husband. I accept that Ms Chan was reluctant to sign the 2^nd mortgage. I am also prepared to accept that Mr Samson Lam and Ms Chan may have argued over whether it was a good idea to sign the 2^nd mortgage. The argument may well have been heated. But in the end, Ms Chan was persuaded to sign, presumably in the best interests of her husband, herself and her family. The decision to sign may have been a difficult one for Ms Chan to make. But that does not mean that she came to her decision otherwise than under her own free will. There was every reason for Ms Chan to provide a 2^nd mortgage over the Silver Crest property, when balanced against the consequences of an enforcement by Deutsche Bank (1) against VPower’s shares, risking a collapse in VPower’s share price, and (2) against her husband based on the personal guarantee, risking her husband’s solvency.

42.  In the audio recordings of his conversations with Deutsche Bank’s staff, Mr Samson Lam assured Deutsche Bank that he was regularly conveying to Ms Chan the substance of his discussions with Deutsche Bank on mortgaging the Eden Gate and later the Silver Crest properties. Mr Samson Lam on several occasions also said that, not being content with what he was telling her, Ms Chan had on her own consulted lawyers about the consequences of a 2^nd mortgage. At trial, Mr Samson Lam said that he had been lying to Deutsche Bank about communicating their discussions on mortgaging the Eden Gate and Silver Crest properties to his wife. He claimed that he never did so. Ms Chan in evidence affirmed that Mr Samson Lam had not informed her at all about his discussions with Deutsche Bank. Mr Samson Lam further stated that he had been lying when he told Deutsche Bank that his wife had consulted lawyers on her own. According to Mr Samson Lam, she had never done so. Ms Chan in evidence affirmed that she had not consulted lawyers.

43.  However, given my doubts as to their credibility, I am unable to accept the evidence of Mr Samson Lam and Ms Chan on the matters identified in [42] above. I have already noted Mr Lam’s propensity to say whatever may be expedient for his position at a given moment. It seems to me that at trial he may well have been lying about lying, because it would help his wife’s case and (indirectly) his own. I find it difficult to accept that over an extended period of time when he said that he was communicating with his wife about his discussions on mortgage with Deutsche Bank that Mr Samson Lam was simply making things up. I also find it hard to believe that, whenever he reverted to Deutsche Bank, saying that his wife was against a second mortgage and was being difficult, Mr Samson Lam was concocting stories. More likely than not, he was giving an accurate account of his conversations with Ms Chan. Thus, in my view, when he told Deutsche Bank that Ms Chan had consulted lawyers because she did not believe him, Mr Samson Lam was telling the truth at the time. It follows that I am unable to accept Ms Chan’s evidence when she says that, at the relevant time she never separately discussed the proposed 2^nd mortgage with lawyers.

44.  There is an underlying contradiction in Ms Chan’s case on undue influence. On the one hand, it is apparent from the evidence that she resisted her husband’s pressure to cause Orient Profit to execute a 2^nd mortgage over the Eden Gate property. On the other hand, she asserts that she was unable to withstand her husband’s pressure to sign a 2^nd mortgage over the Silver Crest property. In my view, the reality is that she was ultimately persuaded by her husband to cause Orient Profit to execute a 2^nd mortgage over the Silver Crest property. She may have done so with great reluctance and unhappiness. But that would have been with clear knowledge of what she was doing. She now says that she was misled by Mr Samson Lam as to whether a 2^nd mortgagee in Deutsche Bank’s position could enforce against a property. She claims that, according to her husband, only the 1^st mortgagee had such ability. But this alleged misunderstanding on Ms Chan’s part is improbable, given the perceptive questions raised by her through her husband about the potential effects of a 2^nd mortgage over the Eden Gate property. What is more likely is that Ms Chan had a good understanding of how 2^nd mortgages operate.

45.  Given my conclusion that no actual undue influence was exerted on Ms Chan, there can be no question of finding presumed undue influence. Indeed, Etridge (No. 2) (for example, at §§19, 92, 93, 107, 158, 159, 160) cautions against relying on presumptions of undue influence in husband and wife cases. The court must instead consider all relevant facts and circumstances in such situations to discern whether there has been actual undue influence. Given no actual undue influence here, it is likewise unnecessary to consider whether Deutsche Bank was put on inquiry as to the possibility of undue influence, or took reasonable steps to ensure that the 2^nd mortgage was properly executed by Orient Profit and Ms Chan.

B.4 Is the 2^nd mortgage over the Silver Crest property enforceable?

46.  Given It follows from the foregoing that the 2^nd mortgage is enforceable.

IV. CONCLUSION

A. The HCA action

47.  There will be orders as follows:

(1) EGL and Mr Samson Lam are jointly and severally liable to pay Deutsche Bank the outstanding principal plus default interest of HK$62,711,449.71 [Sum A].

(2) Interest is to run on Sum A from the date of this judgment until payment at 1% over the HSBC HK$ prime rate.

(3) There will be an order nisi that Mr Samson Lam is to pay Deutsche Bank’s costs of the HCA action on a solicitor and own client basis.

(4) Mr Lam’s Counterclaim is dismissed.

B. The HCMP action

48.  There will be orders as follows:

(1) Within 28 days, Orient Profit is to deliver up the Silver Crest property with vacant possession to Deutsche Bank as 2^nd mortgagee, without prejudice to the rights of the 1^st mortgagee.

(2) Orient Profit and EGL are jointly and severally liable to pay Sum A to Deutsche Bank. However, in accordance with clause 2.2 of the 2^nd mortgage, as against the mortgagor Orient Profit, recourse in respect of Sum A (including any interest thereon pursuant to [48(3)] below) is limited to the proceeds from any sale of the Silver Crest property.

(3) Interest is to run on Sum A from the date of this judgment until payment at 1% over the HSBC HK$ prime rate.

(4) There will be an order nisi that Orient Profit and EGL pay the costs of the HCMP action on an indemnity basis.