DBS KWONG ON BANK LTD v. YEUNG TIM YAU & OTHERS

HCA 12397/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12397 OF 1998

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J U D G M E N T

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1. The plaintiff (the Bank) has at all material times been a bank licensed to carry on business in Hong Kong. The sixth defendant (Marrontex) is a company incorporated and carrying on business in Hong Kong. According to its records, at all material times it has had two shareholders who are both its directors, the second defendant (T M Yeung) and seventh defendant (W C Chung). The first, third and fifth defendants (T Y Yeung, T K Yeung and T F Yeung) are brothers of T M Yeung. The fourth defendant (S K Chan) is a friend of T M Yeung.

2. In March 1993, T M Yeung and W C Chung approached the Bank on behalf of Marrontex for financial accommodation, proffering security as I shall come to. General facilities were offered on terms and accepted. After that on four more occasions T M Yeung and W C Chung applied for more support. On each occasion the Bank's offer was accepted. By the fifth and final transaction completed in April 1995 all seven defendants were committed. These proceedings came to be issued when the Bank called in the advances and nothing was forthcoming.

3. Particulars of the five transactions giving rise to the credit facilities to Marrontex and subsequent increases now follow.

4. The first was in March 1993. The Bank's offer, accepted by the parties concerned, was to grant general and specific facilities to Marrontex upon T Y Yeung (D1) and T M Yeung (D2) entering into and executing a document referred to as an Unlimited Legal Charge over properties they were respectively the registered proprietors of in favour of the Bank. T M Yeung and W C Chung as directors of Marrontex were required to give a personal guarantee as well. The Bank arranged for the guarantee to be executed internally. Then by letter of May 1993 it instructed solicitors Messrs Alfred Lau & Co. to prepare an Unlimited Legal Charge in prescribed form and arrange for it to be executed by T Y Yeung and T M Yeung as mortgagors. The resultant document reveals the signatories were committed to pay to the bank on demand all moneys for the time being owed by Marrontex including interest as may be accruing and if the same came to be incurred the cost of collection on a solicitor and own client basis. In the event of default the mortgagors were each on notice required to give up vacant possession of their respective properties. The document reveals that it was interpreted to both parties by Carol Ling, a clerk of Alfred Lau & Co., and signed by them in the presence of a partner Miriam Lau (Miss Lau). It is pertinent to note that part of clause 3 purporting to limit the liability of the parties to an upper limit (with a gap to be filled in) was deleted and the deletion initialled by the signatories. The document is dated 7 June 1993. This for reference purposes has been referred to as the 1st charge.

5. The second approach was in January 1994. The Bank's offer this time was to require the further security of an Unlimited Legal Charge in prescribed form to be executed by T K Yeung (D3) as mortgagor of a property of which he was the registered proprietor. By letter of February 1994 it wrote again to Alfred Lau & Co. with instructions as before. The document reveals that the signatories were committed to the same obligations as were created in the first charge. This time the document reveals that the interpreting to T K Yeung as mortgagor was undertaken by Janet Man. Miss Lau witnessed his signature. Again a clause which if filled in with a specific figure would have had the effect of limiting the mortgagor's liability to a specific amount was deleted and the deletion initialled. This document was dated 11 March 1994. It is referred to as the 2nd charge.

6. The next approach for more support came in April 1994. The Bank's offer was for another Unlimited Legal Charge, this time to be executed by T F Yeung (D5) as mortgagor, securing a property of which he is the registered proprietor. The letter of instruction this time was to solicitors called C P Lin & Co., dated May 1994. The document prepared and in due course executed followed the same format as before; in particular, that the obligation was unlimited. The interpreter was recorded to be Lui Shin Man, and the witnessing principal D S L Lin. The charge was dated 8 July 1994. Although out of chronological order it has been referred to by others as the 5th charge and I shall refer to it as such to avoid confusion.

7. The fourth approach was in December 1994. The Bank required as security an Unlimited Legal Charge again, this time from S K Chan (D4) mortgaging the property of which he is the registered proprietor. The Bank instructed C P Lin again, by letter dated December 1994. The resultant document on its face was for an unlimited liability. It stated that it had been interpreted by Kwan Siu Kee and signed before another principal of his employer, a Mr M P Au. This document is dated 7 January 1995. It is referred to as the 3rd charge.

8. The last approach in time was made in February 1995. The Bank required the additional security of an Unlimited Legal Charge over another property owned by T F Yeung (D5). This time the Bank instructed another firm of solicitors altogether called C P Tsang & Co. The letter was dated March 1995. The document followed the same format and again was to secure repayment of an unlimited amount. A clause which if filled in would have limited exposure by an amount stated was deleted and the deletion initialled. A clerk called Tony Chan interpreted the document. He also witnessed the signatures. The charge is dated 4 April 1995. It is known as the 4th charge.

9. By the legal charges executed, on the face of them defendants 1 to 5 became committed on demand by the Bank to pay it all sums of money which at the date of the demand were outstanding and according to the books of the Bank due by Marrontex. The documents further provided (in each case at clause 6(a)) that should there be default in payment of moneys thereby secured and due the Bank would be lawfully entitled to possession of the properties the subject of the charges. Clause 2(d) in each case stated that the Bank would be entitled to recover its costs on a solicitor own client scale. By the guarantee executed by defendants 2 and 7 they were committed to pay to the Bank on demand all moneys then owing by Marrontex.

10. No issue is taken by any defendant as to the ownership of the properties subjected to the charges to the Bank or the execution of those charges or their content.

11. There was default. The Bank instructed Messrs Ho & Wing, solicitors, who by letter of 9 May 1998 wrote to Marrontex demanding repayment of all moneys due which then came to $12,345,856.70 with interest accruing and costs. On the same date demand was made of defendants 2 and 7 under the guarantee. Also on the same day notice was given to defendants 1 to 5 that unless payment of the same debt was made within 30 days the Bank would be entitled to exercise its power of sale under the legal charges to sell the secured properties, reserving to itself its right to recover all moneys due.

12. There being no response, the Bank issued a writ against all seven defendants claiming the amount then outstanding and accrued interest and costs, on an indemnity basis. As against defendants 1 to 5 it sued for possession of the properties the subject of the legal charges.

13. Marrontex and defendants 2 and 7 have taken no steps and submitted to judgment in default, entered in June 2000. Defendants 1, 3, 4 and 5 filed a statement of defence in October 1998. As pleaded they respectively admitted to being the owners of the properties in question and to having executed legal charges whose contents were as averred by the Bank. But each claimed that at the time of execution there was material misrepresentation as to the extent and limit of the liability each was assuming upon signing. Each averred that at the time of signing the employee of the solicitors instructed by the Bank having conduct of the transaction told him that the maximum exposure in each case was $2 million. In each case the solicitors firm and clerk responsible was named - not in every one the solicitor named in the instructions or the clerk named in the charge. In each case he signed in reliance on that misrepresentation.

14. It was further pleaded that:- "the 1st, 3rd, 4th and 5th defendants at the material time when the legal charges were executed were shareholders of Marrontex and their interests in the said company were confined to their respective shareholdings and this fact was and is known to the Bank. They have no reason to assume responsibility over all the debts of Marrontex." All conceded to judgment but limited to $2 million each.

15. The Bank in a reply to the defence pleaded express denial; that completed the pleadings.

16. And so the matter came to trial.

17. Of the plaintiff's witnesses Janet Man was called first. She was at the material time the clerk who had on the face of the document taken T K Yeung (D3) through the charge now known as the 2nd charge, named in the pleadings as having represented to T K Yeung that his liability was limited to $2 million. She confirmed, as the documents on file revealed, that she was delegated by her principal to prepare the Unlimited Legal Charge in line with the Bank's instruction and she did as instructed. Following the prescribed format the document she prepared specifically spelt out that the mortgagor upon execution was committed to pay the unlimited liability due by Marrontex to the Bank. She said her signature on the document as interpreter signified that she had interpreted the document and explained the purport and nature of the obligations T K Yeung was by signing committing himself to. She told him that his liability was unlimited and the consequences of that. She denied that she represented his liability was limited to $2 million or to any sum. Following her explanation she introduced T K Yeung to her principal Miss Lau who witnessed his signature. T M Yeung and W C Chung as directors of Marrontex were also present to sign under seal for Marrontex as borrower.

18. Miss Man was named in the pleadings as having made the same misrepresentation to limit the liability of T Y Yeung (D1) when he attended the office of her employer to sign the first charge. Miss Man said that the file opened for the purpose revealed that the task of preparing the first charge and explaining and interpreting its contents to T Y Yeung was assigned to her colleague Carol Ling. She had played no part and was not present when Miss Ling attended to this. Miss Man said that it was not permitted for the clerks to share the tasks associated with a client's transaction. Had she been delegated to deal with T Y Yeung she would have been named and would have signed the 1st charge. Her name and signature not being on the document means she did not.

19. Miss Lau came next. She said the clerks in her office were well trained to explain the content of the documents prepared before clients sign. That Miss Man's name and signature was on the 2nd charge meant that she was the clerk delegated to attend to T K Yeung, just as Carol Ling's name and signature on the 1st charge indicated that it was she, not Miss Man, who attended to T Y Yeung (and T M Yeung) in the first. She would not have been permitted to assist Carol Ling without taking over the file herself and only then with her permission.

20. I pause to mention here that Carol Ling made a witness statement in anticipation of being called to give evidence. By the time the case came on for trial she had emigrated to Canada and was no longer available for the purpose.

21. The next witness to be called was Lui Shin Man. He was at the material time employed as a conveyancing clerk by C P Lin & Co., the solicitors instructed by the Bank to prepare the 3rd charge for execution by S K Chan (D4) and the 5th charge for execution by T F Yeung (D5). He was the clerk named in the pleadings as having represented to T F Yeung that his liability under the 5th charge was limited to $2 million. He confirmed that he was instructed by his employer to attend to the preparation of the 5th charge, and did so in accordance with the Bank's instructions. The charge was drawn and engrossed as an Unlimited Legal Charge because that was what was instructed. His name and signature on the 5th charge established it was he who interpreted the contents to T F Yeung (D5). In doing so he informed him as mortgagor that his liability was unlimited. He did not tell him that his liability was limited to $2 million or any other amount, because that would have been contrary to instructions and the document.

22. Mr Lui was named in the pleadings as having represented the Bank when he misrepresented in turn to S K Chan (D4) and to T F Yeung (D5 again) that their liability in each case was $2 million before they respectively signed the 3rd and 4th charges. He said that the document itself and the file opened when instructions came from the Bank to prepare the 3rd charge reveal that the clerk delegated to handle the preparation and interpretation and who did in fact do so was a colleague called Kwan Siu Kee. He played no part; had he done so his name and not Mr Kwan's would have been recorded on the 3rd charge. He did not meet the mortgager S K Chan and made no representation to him as pleaded. As to the allegation that he had led T F Yeung (D5) astray before he signed the 4th charge, he said he did not. The letter of instructions from the Bank and the document itself reveal that the solicitors instructed were C P Tsang & Co. for whom he Mr Lui has never worked. The clerk on the document recorded to have undertaken the interpreting is called Tony Chan whom he does not know and has never worked with. So he had no connection with T F Yeung when he signed the 4th charge.

23. Next to be called was Kwan Siu Kee. He said that he was the clerk designated by his employer C P Lin & Co. to prepare the 3rd charge for S K Chan (D4) to sign. He said that the record reveals he interpreted the document for Mr Chan before he signed. He said he told him that his liability was unlimited; most certainly that he was not protected by an upper limit of $2 million or any other figure. He said that his name and signature on the 3rd charge confirmed that it was he and he alone who interpreted the document to S K Chan before it was signed in the presence of his supervising principal. His colleague Lui Shin Man played no part; this would have been irregular requiring permission from his principal. Had Mr Lui participated it could only have been to interpret the whole document but he did not because his name and signature were not recorded.

24. Next I heard from David Lin Siu Leung. He confirmed that he is and remains a principal of C P Lin & Co. He said that T F Yeung (D5) signed the 5th legal charge in his presence. He confirmed the usual practice for the firm in dealing with the preparation and execution of such documents is as described by S M Lui, a clerk in his firm's employ at the time. He said that the name of the clerk responsible for interpreting the document in question is named on the document and he is then required to sign it. S M Lui's name and signature on the 5th charge is confirmation that he was assigned that task in that case. He said it is contrary to proper practice for another clerk to take over the whole or part of that task. If that were to happen he would need to be informed; further, the clerk who had taken over the function would have his name and signature on the document.

25. Tony Chan came next. He was at the time employed by C P Tsang & Co., the solicitors who by the appropriate letter of instruction were appointed by the Bank to prepare and have executed the 4th charge, by which T F Yeung (D5) was to be bound. (This is the transaction in which it was pleaded that Lui Shin Man of C P Lin & Co. had misrepresented to T F Yeung that his liability was limited to $2 million). He said that the 4th charge bears his name and signature, signifying that he is the conveyancing clerk to whom the task of preparing the document and interpreting its content was assigned. He said that the charge was an Unlimited Legal Charge and worded to that affect because the instructions so required that. To that end he ensured that a clause used for the purpose of fixing a limit to the signatory's exposure was crossed out and initialled. In taking T F Yeung through the document he did not tell him or anyone else in his presence that the limit of his liability would be $2 million. Having taken the signatories including T F Yeung through the document he had the same executed. He witnessed the signatures in each case. He did not delegate the task of interpreting the 4th charge to anybody else; it would have been irregular to do so. He did not then and does not now know Lui Shin Man. At no stage did he work in concert with S M Lui. It was he and he alone and not Lui or anyone else who had conduct of the preparation, interpretation and the execution of the 4th charge.

26. There was one more witness - Mr Kwan Moon Hung. At all material times he has been and is to date a manager of the Bank with conduct of the file giving rise to the granting of credit facilities to Marrontex. He said that the offers the Bank made on each of the occasions accommodation for Marrontex was applied for and granted required the charges to be Unlimited Legal Charges and that was why the instructions on each occasion were to that affect. The credit asked for and granted was made available to Marrontex when the solicitors instructed in each case certified that an Unlimited Legal Charge had been executed and was in the course of registration.

27. He also adduced evidence to the effect that the Bank's records revealed a total indebtedness as at 20 May 2003 of $18,454,160.85 made up as follows:-

Outstanding trust receipts	$9,259,305.35
interest thereon at 10.5% to 20 May 2003	$7,139,053.47
Outstanding overdraft	$2,041,262.48
interest thereon at 13% to 20 May 2003	___$14,539.55
	$18,454,160.85

The daily rate on the combined interest is $3,390.66.

28. That was the plaintiff's evidence. There was no other. The defendants chose neither to give evidence themselves nor call any witness; a surprising election, given the material disputes of fact that emerged from the pleadings and witness statements and where the burden of proof lies as I shall come to.

29. By this time the sole issue for determination in the case against each of the four defendants contesting liability was whether the defendants had been induced to sign the 1st to 5th charges because the named clerks employed by the various firms of solicitors instructed by the Bank to prepare the charges as agents of the Bank misrepresented that the individual maximum liability under the respective legal charges was $2 million.

30. The pleading that at the time of the execution of the charges the defendants were shareholders of Marrontex and their interests in it were confined to their respective shareholdings giving them no reason to assume responsibility over all the debts of Marrontex is hard to fathom as to meaning and effect. And there was no evidence to counter company searches of Marrontex which recorded that the only shareholders have all along been its directors T M Yeung (D2) and W C Chung (D7). As it turned out these so-called allegations were not put, leaving thus only the defence of misrepresentation.

31. There are two essential ingredients to establish misrepresentation so as to entitle relief. The first is that a representation that is false has been made by the representor to representee; the second that the representee was induced thereby to enter into a binding contract.

32. The burden is on the representee to satisfy both ingredients; see Halsbury's Laws of England 4th Edition Volume 31 at paras. 734 and 768.

33. At Halsbury para. 767 it is stated:

"767. Matters relevant in determining questions of fact. In determining, as a fact, whether any representation was of a nature to induce, or did induce, the representee to alter his position, all the circumstances must be considered, including, among others, the character of the document in which the representation is contained, the nature of the transaction or business into which it is alleged that the representee was induced to enter, and the representee's general or particular experience, whether arising from his profession or trade or otherwise."

34. As to whether there were false representations the burden being on the defendants to establish that in each case, there is no evidence to counter the testimony of the conveyancing clerks delegated in each case to interpret and explain the charges that they told the signatories prior to signing that the obligation was an unlimited one, and their categorical denial in each case that they had represented a limit of $2 million or any other figure. And the defendants being the only ones capable of adducing evidence of inducement, there is nothing before me to support the contention that they signed the charges because they were in turn induced by a false representation to do so. So, the defence fails on the burden of proof.

35. But given the seriousness of the allegations made by the defendants, which effectively is one of professional misconduct against the clerks and their employers, I believe it appropriate to go further. I am satisfied on all the evidence adduced that the instructions given by the Bank to prepare in each of the five transactions the 1st to 5th legal charges were carried out to the letter. The conveyancing clerks responsible who gave evidence satisfied me that they were competent, experienced and well-trained, and that the task of preparing and explaining the documents prior to execution was well within their capabilities in each case. I am further satisfied that in each case the mortgagor defendant was properly informed of his obligation before he committed himself to the charge; in particular, that it rendered him liable to all debts incurred or to be incurred by Marrontex. I did not hear from Carol Ling. But the pertinent charge and the instructions which gave rise to it were before me as was her principal's Miss Lau's account of the firm's practices, her experience and reliability. I have no reason to doubt that she also performed to the required level. Of course there is no evidence to support the somewhat bizarre allegations in some cases that a clerk other than that named in the document had conduct of the file at the time the charge was signed, which I reject as fanciful out of hand.

36. The claim succeeds. The quantum claimed is not challenged.

37. There shall be judgment against the 1st, 3rd, 4th and 5th defendants as prayed for. The amount set out in prayer (f) is $18,508,411.41 with interest running at 10.5% on $9,259,305.35 ($2,663.64 per day) and at 13% on $2,041,262.48 ($727.02 per day) from today until payment.

38. As to costs; this part of the order is nisi at first instance. The claim is for indemnity costs. The defendants are contractually bound to pay the Bank's costs on collection on a solicitor and own client basis, which is the same scale. I find no reason to disturb this obligation. Costs taxed if not agreed on a solicitor and own client basis are to the plaintiff.