BANCO DE ORO UNIBANK, INC. formerly known as BANCO DE ORO-EPCI, INC. v. THE PERSONAL REPRESENTATIVES OF THE ESTATE OF LAM SAI WING, DECEASED AND ANOTHER

HCA2272/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2272 OF 2008

----------------------------

BETWEEN

------------------------

J U D G M E N T

------------------------

1.  This is an appeal from the learned Master giving judgment for the plaintiff bank against the 2nd defendant, being the wife of the deceased 1^st defendant, Mr Lam. The liability of the 2^nd defendant as alleged by the bank arose from an overdraft occurring in the joint account which imposed a joint and several liability on both Mr and Mrs Lam. The account was opened in October 2004. Thereafter, the account was reviewed annually in or around September/October/November the next year. The facility was reviewed in 2005, 2006 and 2007. The last facility letter was dated 10 September 2007, and its purpose was to renew the facility with similar terms found in the 2004 contract. Unfortunately, Mr Lam died in September 2008, before the account was reviewed in that year.

2.  The plaintiff now sues to recover $4,959,655.93, being the outstanding amount together with interest.

3.  The defence put by the 2^nd defendant, Mrs Lam, was that her signatures in :

(a)  the opening of the account;

(b)  the agreement; and

(c)  each and every review letter.

were obtained by the undue influence of Mr Lam.  Mr K M Chong who appeared together with Mr Adrian Leung, counsel for Mrs Lam, listed out all the elements of actual undue influence exerted on her by her husband as follows :

“(1)  The 2^nd defendant would sign whatever documents her husband asked her to sign, even though the 2^nd defendant cannot properly read English.

(2)  That had been the practice between her and (according to her description) her dominating Chiu Chow husband.

(3)  The 2^nd defendant would not resist her husband’s request and therefore followed his instructions faithfully.

(4)  The husband never offered any explanation to the 2^nd defendant as to the risks and consequences of signing the facility documents.

(5)  The 2^nd defendant would not dare to raise inquiries of these documents with her husband.

(6)  The 2^nd defendant would not have signed the facility document but for her husband’s dominance.”

4.  Further, Mrs Lam herself said to the similar effects that :

“(1)  She had been a subservient and submissive wife who had received very limited education and only attended class up to Form 2 in the mainland.

(2)  She came to Hong Kong in 1978 and her qualification and experience was confined to her work in the mainland and none of them could arguably be said to be relevant consideration of business experience in Hong Kong.  [I should note here that it was the plaintiff’s case that she had been a co‑director of many companies with her late husband and she had been working in Mr Lam’s group of companies.]

(3)  At home and at work, the 1^st defendant was a very traditional and Chiu Chow man and had been a male chauvinist who made all decisions for her, and she, as a dependent and obedient wife, would not dare to raise any contrary views.

(4)  It was her practice that she would sign documents placed by her husband before her without any questioning or discussion.

(5)  No explanation was given to her by anyone, including her husband, as to the contents of the facility documents.”

Some of these points are repetitions of the aforesaid counsel’s submissions.  The second list is in any event, particulars she furnished on oath in support of her defence of undue influence.

5.  The plaintiff submitted that all these are incredible or not capable of belief for the purpose of Order 14 summary judgment. In my view, I cannot accept that these points are entirely unbelievable. In order not to prejudice the trial, I will only say that those contentions put by wives or sisters of other cases like Etridge No. 2[1], Li Sau Ying[2], and Kwok Lai Sim[3], are of the same or similar nature.

6.  In Kwok Lai Sim, the case that was before me, the sisters said :

“In order to help our brother, we just signed whatever was put before us but we thought we would have lost at most the sum he said he would borrow.  We did not know we could have lost our residential flat together with the outstanding balance by way of personal liability under an ‘All monies’ guarantee!”.

7.  In that case, the scenario was quite different and certain explanations were actually given by a solicitor to the sisters. But all those documents, which were in English, were signed within about half an hour. I have decided in that case that there was not enough explanation given to the sisters because they were all in English, albeit the nature of the documents was explained.

8.  The second point which I have to decide is somewhat different, and that is whether the bank had actual or constructive notice of undue influence of the 1^st defendant upon the 2^nd defendant. Counsel for the 2^nd defendant listed the following points to support their case :

“(1)  The 2^nd defendant was the wife of the 1^st defendant deceased.

(2)  The joint account was used exclusively by Mr Lam, and the bank should have known that from the following facts :

(a)  the 1^st defendant’s long acquaintance and good rapport and frequent correspondence with the bank and its staff;

(b)  all previous negotiations were done between the bank and Mr Lam only, and they were all in the evidence of Mrs Lam in respect of the grant of the banking facilities in question to Hang Fung Gold;

(c)  Mrs Lam had never operated the joint account, nor had she signed any cheque for withdrawing money from the overdraft facilities offered through this joint account; and

(d)  all previous repayments of the overdraft money were solely made by Mr Lam, and the defence has given the example of a $30,000 cheque signed by the 1^st defendant himself, and that is in bundle B42(d), page 75, dated 8 May 2008.”

9.  Mr Chong, counsel for the 2^nd defendant, relied on a passage of Etridge No. 2 by Lord Nicholls, at page 511C-G :

“I now return to the steps the creditor should take when it has been put on inquiry and for its protection is looking to the fact that the wife has been advised independently by a solicitor... I consider the bank should take steps to check directly with the wife the name of the solicitor she wishes to act for her.  To this end, in future the bank should communicate directly with the wife, informing her that for its own protection it will require written confirmation from the solicitor, acting for her to the effect that the solicitor has fully explained to her the nature of the documents and the practical implications they will have for her.  She should be told that the purpose of this requirement is that therefore she should not be able to dispute she is legally bound by the documents once she has signed them.  She should be asked to nominate a solicitor whom she is willing to instruct to advise her, separately from her husband and act for her in giving the necessary confirmation to the bank.  She should be told that if she wishes, the solicitor may be the same solicitor as that acting for her husband in a transaction.  If a solicitor is already acting for the husband and the wife, she should be asked whether she would prefer that a different solicitor should act for her regarding the bank's requirement for confirmation from a solicitor.  The bank should not proceed with the transaction until it has received an appropriate response directly from the wife.”

This passage, of course, was said in respect of more complicated transactions involving the wives as mortgagors and guarantors.  This is not a direct authority in support of a situation of joint account overdraft facilities.  It is, however, indicative of the onus of responsibility of a creditor in certain circumstances in ensuring that the other party to a transaction fully understands what he is entering into and that he actually consents to it of his own free will.

10.  On the issue of whether the bank should have actual or constructive notice of undue influence, Mr Leung, counsel for the bank, submitted that the critical times are the opening of the account or shortly before the opening of the account or at the time when the facilities which Mr and Mrs Lam were jointly and severally liable were given.

11.  I would not accept the aforesaid submission of Mr Leung. I prefer the submission of Mr Chong that it is at least arguable that there were several critical times when the bank should have actual or constructive notice of undue influence. Mr Chong submitted that since the bank contends that Mrs Lam is bound by her signature on the facility letter on 10 September 2007 to be jointly and severally liable for all outstanding amounts, the 2^nd defendant could at least argue that at that time she was unduly influenced by her husband.

12.  Before I decide on this question, it is useful to recall the following facts. First, by September 2007 it should be very clear to the bank that only Mr Lam operated the account by signing cheques and withdrawing various amounts of money from the account linked to the overdraft facilities. Secondly, the bank only met Mr Lam in all previous negotiations regarding the banking facilities in this account and they had never met Mrs Lam before.

13.  Thirdly, the 2^nd defendant had never operated the joint account or signed any cheques or drawing any money from this joint account. Lastly, the repayments were always made by Mr Lam himself.

14.  Thus from those observations above, it is at least arguable that the bank should have actual or constructive notice of undue influence. If actual or constructive notice can be proven, according to the English House of Lords’ case of Etridge No. 2, the Court of Final Appeal’s decision in Li Sau Ying and the Court of Appeal decision in Kwok Lai Sim, the bank would be put on inquiry.

15.  The 2^nd defendant also alleged that the amount outstanding is much less in the latest statement of account than the amount claimed by the bank because it had written-off a substantial part of the amount. This is another triable issue, but this issue would only minimise the amount. It would not affect the defence of undue influence, which is a full defence to the whole case of the bank.

16.  For the aforesaid reasons, I would allow the appeal, and the 2^nd defendant is given unconditional leave to defend the case.

[Submissions on costs]

17.  In respect of costs, I accept the submission of Mr Chong. The 2^nd defendant has won the appeal, and therefore the 2^nd defendant should have won before the Master. If the 2^nd defendant was successful before the Master, the usual order before the Master would be costs in the cause when the 2^nd defendant was given unconditional leave to defend. But then I am faced with an appeal, and the Appellant has been successful in the appeal, and thus the additional costs which she should not bear in any event would be her costs of the appeal.

18.  Accordingly I set aside the Orders of the Master. There shall be costs in the cause before the Master, but costs of the appeal be to the 2^nd defendant in any event.

[Submissions]

19.  Further orders and directions : Leave granted to the 2^nd defendant to amend her defence within 14 days. The plaintiff shall file and serve its reply, if any, within 14 days thereafter.