STANDARD CHARTERED BANK (HONG KONG) LTD v. PAK KWAN HO AND ANOTHER

HCMP 1637/2015

[2018] HKCFI 523

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1637 OF 2015

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J U D G M E N T

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INTRODUCTION

Introduction

1.  This is the substantive hearing of the plaintiff’s (the “Bank”) originating summons dated 7 July 2015 seeking to recover various defaulted loans granted to the 1^st and 2^nd defendants, who are husband and wife, pursuant to a legal charge dated 30 September 2000 over a property in Royal Palms in Yuen Long jointly owned by them (the “Property”). 

2.  A series of judgments have already been obtained against the 1^st defendant.  There are therefore no further issues about the 1^st defendant’s liabilities and quantum in respect of the various loans owed to the Bank.  The outstanding issues for determination in this hearing are the 2^nd defendant’s liability in respect of the various loans and the Bank’s claim for vacant possession of the Property as against both the 1^st and 2^nd defendants.

The background

3.  By a provisional sale and purchase agreement dated 30 July 2000, the defendants jointly purchased the Property at the price of $7 million.  They obtained a loan of $4.9 million, equivalent to 70% of the purchase price, under the Bank’s Home Investment Plan to complete the purchase (the “initial loan”).  The initial loan was secured by a legal charge containing an all-monies mortgage over the Property dated 30 September 2000 (the “Legal Charge”).  The defendants are both borrowers and mortgagors.

4.  In 2004, 2005 and 2010, the defendants were granted further loans under the Home Investment Plan (the “further loans”).  In the facility letter dated 16 September 2004, it was stated as a condition that the loan offer “is subject to fully settled [sic] of [initial loan] upon loan drawdown”.   In respect of these further loans, the defendants are still the borrowers and mortgagors.  As at 1 July 2017, the outstanding initial loan and further loans was $1,934,902.55 and $723,247.94 respectively. These loans are collectively referred to as the “Mortgage Loans”.

5.  Between 2011 and 2013, ie more than 10 years after the mortgage was created, the 1^stdefendant obtained loans for himself personally (the “Personal Loans”) and loans for his companies, Pada Industrial (Far East) Co Ltd, Colour Apparel Co Limited, Sinomax International (HK) Limited and Target Ease International Limited (the “Corporate Loans”).  The facility letters in respect of the Personal Loans and Corporate Loans were all signed by the 1^st defendant. The 1^st defendant, as director of those companies, also signed guarantees as security for the repayment of those Corporate Loans.  The 2^nd defendant is not and has never been a director of any of those companies and has never participated in any of their businesses.  She had not sign any of those facility letters.  Her evidence is that she did not even have knowledge of those Personal Loans and Corporate Loans. 

6.  In late 2014, the 1^stdefendant started to default in repaying thePersonal Loans and Corporate Loans.  On 7 July 2015, upon the defendants’failure to comply with the demand to repay, the Bank commenced the present proceedings.

The issues in dispute

7.  The Bank’s claim is for the outstanding balance under the Mortgage Loans, the Personal Loans and the Corporate Loans.  The 2^nd defendant does not dispute her liability to repay the Mortgage Loans which according to her case were secured by the Legal Charge, but disputes her liability to repay the Personal Loans and the Corporate Loans which she has never been privy to and/or consented to.  However, the Bank was of the view that as a result of clause 1.01 of the Legal Charge, the 2^nd defendant is also liable for repayment of the Personal Loans, the Corporate Loans and interest arising therefrom.  Thus, the primary question as regards the Bank’s claim or the 2^nd defendant’s liability for the 1^st defendant’s Personal Loans and Corporate Loans turns on the interpretation of the terms of the Legal Charge.

8.  In addition to disputing her liability, the 2^nd defendant relied on the following four defences:

(1)  material change of circumstances since the execution of the Legal Charge or the rule in Holme v Brunskill [1] ;

(2)  undue influence by the 1^st defendant in the execution of the Legal Charge;

(3)  misrepresentation by the Bank in the execution of the Legal Charge; and

(4)  waiver arising from the Bank’s receipt of instalment payments from the 2^nd defendant.

THE 2^ND DEFENDANT’S LIABILITY

The relevant provisions of the Legal Charge and a summary of the parties’ construction

9.  The Bank’s claim is based on the defendants’ covenant in clause 2.01 of the Legal Charge as “Mortgagor” to repay on demand the “Secured Indebtedness” owed to the Bank and on clauses 3 and 4 which provided for the agreement of the “Mortgagor” to charge the property to the Bank as a continuing security for the “Secured Indebtedness”.  The defendants were described and identified in the preamble and the Schedule of the Legal Charge as “Mortgagor”.  This expression is defined in clause 1.03 as follows:

“ Where there is more than one person comprised in the expression‘Mortgagor’, references to the Mortgagor shall, where the contextpermits, take effect as references to such persons or any of them and all representations, warranties, undertakings, agreements, covenants and obligations on the part of the Mortgagor herein expressed or implied shall, unless the context requires otherwise,be deemed to be made, given or assumed by such persons jointly and severally.” (Emphasis highlighted by the 2^nd defendant)

10.  “Secured Indebtedness” was defined in clause 1.01 as follows:

“ ‘Secured Indebtedness’ means all monies, obligations and liabilities now or at any time hereafter due, owing or incurred to the Bank by the Mortgagor whether on any banking or other account or otherwise in whatever manner and whether actual or contingent and in whatever currency and whether solely or jointly and in whatever name, style or form and whether as principal debtor or as surety and whether principal, interest, fees or otherwise together with interest on all such monies at such rates as shall from time to time be charged by the Bank and all fees, commissions and other costs charges and expenses (including legal and other fees on a full indemnity basis) incurred by the Bank in relation to the Mortgagor and all other monies hereby secured;”

(Emphasis highlighted by the Bank) 

This is the familiar “all-monies” clause which has been extensively used in the banking industry. It was drafted in extremely wide terms and covers practically any debt owing to the bank howsoever and whensoever incurred.  Similar clauses have been construed by the courts as having the effect of imposing on the mortgagor the obligation to repay any indebtedness owing to the bank, whether as principal or as surety, at the time of execution of the legal charge or at any time thereafter.  See AIB Group (UK) Ltd v Martin & Anor [2].  The 2^nd defendant has no dispute that this is the effect of the clause insofar as it applies to lone mortgagor, but not to a mortgagor comprising of more than one person.

11.  In essence, the construction of the Legal Charge contended by the Bank is, firstly, that clause 1.01 is an “all-monies” clause which covers all indebtedness of the “Mortgagor” at the time of execution of the Legal Charge and in the future, whether as principal or as surety; and secondly, that by virtue of the extended interpretation under clause 1.03, the expression “Mortgagor” refers to the 1^st and 2^nd defendants jointly and each of them severally.  By the combined effect of these two clauses, each of the defendants is jointly and severally liable for any indebtedness created by them, whether as principal or as surety, and whether jointly or by either of them severally.  Therefore, the 2^nd defendant is liable jointly and severally with the 1^st defendant for the Personal Loans created by the 1^stdefendant as principal and for the Corporate Loans created by him as surety.  The 2^nddefendant contended otherwise.  Her argument is that, firstly, the extended interpretation of the expression “Mortgagor” only applies if the context permits but not otherwise; and that secondly, the factual matrix does not permit the extended meaning to be applied to the definition of “Secured Indebtedness” so as to create a joint and several liability on either of them for the indebtedness of the other.

The applicable legal principles of construction of contract

12.  Interpretation of a document or a contract is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  It is not the same as interpretation of the meaning of the words used in the contract or the meaning of a particular provision.  The document must be read and construed as a whole.  It would be useful to quote the following principles of construction as summarized by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [3] :

“ The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact,’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judgesto attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

‘ if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

13.  These principles have been affirmed by Lord Hoffmann sitting as a Non Permanent Judge of the Hong Kong Court of Final Appeal in Jumbo King Ltd v Faithful Properties Ltd & Ors [4].  His Lordship contrasted the very realistic situation where despite the inadequacy of the language used there is no doubt as to what the parties meant and where the clear language used left no doubt as to what the parties meant though the consequence would be very hard for one of the parties.  In the former case, the court would give effect to the presumed intention of the parties despite the language used; but in the latter case, it would give effect to the clear intention of the parties as expressed by the language despite the hardship to one of the parties. 

The factual matrix

14.  The 2^nd defendant’s construction of the Legal Charge is premised on two phrases in clause 1.03, ie “where the context permits” and “unless the context requires otherwise”.  Mr Khaw SC, counsel for the 2^nd defendant, argued that “context”meant the factual matrix, particularly, the fact that the defendants needed funds to finance the purchase of a family home and their application for the initial loan under the Bank’s Home Investment Plan, which was exactly 70% of the purchase price of the property.  Hence, he argued that the Legal Charge was executed for that purpose and not for the purpose of securing any existing general banking facilities granted to the 1^st defendant alone or his companies.  He also argued that at the time of execution of the Legal Charge, the Personal Loans and Corporate Loans did not exist and had never been in the contemplation of the 2^nd defendant.  Hence, the liability for the 1^st defendant’s Personal Loans and Corporate Loans is outside the realm of the 2^nd  defendant.

15.  On the other hand, Mr Chan, counsel for the Bank, argued that the word “context” in the two phrases meant the textual context.  It is only if the textual context clearly refers to “Mortgagor” in the singular sense then it should not be read in the plural sense.  He submitted that there were no indications whatsoever of any particular emphasis on the need to look at the factual circumstances surrounding to execution of the Legal Charge to ascertain the meaning the word “context”.

16.  In construing a document, the court adopts a purposive approach and construes a document against its factual matrix.  As Lord Wilberforce said, the factual matrix includes practically anything which the background may include.There is no limit as to what can be regarded as the background, except the parties’ subjective intention.  Here, all the evidence that the parties adduced about the Home Investment Plan is nothing but its name.  Nothing much could be read into the factual matrix from the name of this financial product offered by the Bank.  The documentary evidence includedthe defendants’ application, the Bank’s letter of offer, its terms and conditions and the Legal Charge.  Paragraph 4 of the terms and conditions expressly stated that this facility and any facility made available in the future would be secured by an “all monies” legal charge over the Property.  Plainly, the parties anticipated additional facilities may be granted in the future after the acquisition of the property.  The property having been acquired and charged to the Bank, such future facilities, if granted, would most likely be for purposes other than home investment.  This “all-monies” clause was included for the convenience of the mortgagor who may conveniently obtain further loans by entering into this clause and use the property as security without having to incur additional costs and time in executing any other security documents.  It was also provided for the protection of the bank so that its further advances would be secured.  The mortgagor may use the future facilities for any purpose other than those related to the improvement of the property.  Apart from this provision, these documents contain absolutely no information whatever about the nature, purpose and terms or conditions of Home Investment Plan, let alone that the 2^nd defendant’s assertion that the obligation secured by the legal charge to be executed by them was to be limited to repaying only the loan advanced for the purpose of purchasing the property and not any other indebtedness, such as general banking facilities for either of the defendants alone or their companies.  The parties clearly anticipated the possibility that there may be future loans, though the form in which the future loans may take was left open.  There was nothing in the factual matrix which could permit Mr Khaw SC to launch the argument that the Personal Loans and Corporate Loans were not in the contemplation of the 2^nd defendant.  I have to agree with Mr Chan that the meaning of the word “context” is only to be found within the four walls of the Legal Charge.  The consequence of such an interpretation may be hard for the 2^nd defendant.  The following dicta of Lord Hoffmann in Jumbo King[5] are pertinent:

“ The construction of a document is not a game with words. It is an attempt to discover that a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have saidthings which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement—evidence of such negotiations is inadmissible—and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

(My emphasis highlighted)

Clause 1.03

17.  Clause 1.03 consists of two limbs.  The first limb applies to the “Mortgagor”.  It provides that references to the Mortgagor shall where the context permits take effect as reference to such persons or any of them.  The second limb applies to obligations on the part of the “Mortgagor”.  This limb provides that unless the context requires otherwise, these obligations shall be deemed to be assumed by such persons jointly and severally.  This clause is drafted in plain, simple and ordinary language.  Mr Khaw SC argued that this provision only applied where the context permitted and did not apply in the context of the defendants applying for finance under the Home Investment Plan.  As submitted by Mr Chan, there were no indications whatsoever that “where the context permits” or “where the context otherwise requires” contained any particular emphasis on the need to look at the factual circumstances surrounding the execution of the Legal Charge.  For reasons as explained above, there is nothing in the factual matrix which justified a disapplication of this clause.

The construction of clause 1.01—the “Mortgagor’s” obligation

18.  With the above construction, I now turn to examine the “Mortgagor’s” obligation under clause 1.01.  Mr Chan submitted that the 1^st and 2^nd defendant’s obligation could be readily appreciated by substituting the word “Mortgagor” by the “1^st and 2^nd defendant or any of them”.  Thus, the substituted provision reads:

“‘Secured Indebtedness’ means all monies, obligations and liabilities now or at any time hereafter due, owing or incurred to the Bank by the 1^st and 2^nd defendants, or any of them, whether on any banking or other account or otherwise in whatever manner and whether actual or contingent and in whatever currency and whether solely or jointly and in whatever name, style or form and whether as principal debtor or as surety …”

Mr Chan submitted that the question is what has the 2^nddefendant covenanted to repay.  He argued that read with the substituted wordings, it is clear that the 2^nddefendant has covenanted to repay all indebtedness incurred by her and the 1^stdefendant jointly or by either of them. Such indebtedness included the 1^stdefendant’s Personal Loans and Corporate Loans, regardless of whether they were incurred at the time of execution of the Legal Charge or thereafter and whether she had knowledge of those loans before or when they were incurred.  Those matters are totally irrelevant.  He drew support for the above construction from the House of Lords decision in AIB Group (UK) Ltd v Martin & Anor [6].

19.  In AIB Group (UK) Ltd, Martin, a property developer who had taken out loans from the plaintiff bank under his own name and secured against his own properties, entered into a partnership with Gold, a dentist.  Then the partnership took out loans from the plaintiff bank with a joint mortgage containing a similar “all monies” clause over their joint properties.  Subsequently, Martin defaulted in his own loans and the sale of his own properties left a shortfall in repayment. 

20.  Clause 2 of the joint mortgage reads:

“ The mortgagor hereby covenants with … the bank … that it will on demand pay or discharge to the bank … (1) all sums of money which have been or are now or may hereafter at any time or from time to time be advanced to the mortgagor by the bank…; (2) all other indebtedness and/or liability whatsoever of the mortgagor to the bank … present, future, actual and/or contingent … (whether alone or jointly with any other person and in whatever style, name or form and whether as principal or surety);”

This is the familiar “all monies” clause commonly used in banking practice.  It is similar to clause 1.01.  The interpretation clause contains an expanded definition for the expression “the mortgagor” where it includes more than one person as:

“ shall be construed as referring to all and/or any one of those persons and the obligations of such persons hereunder shall be joint and several”.

This provision is similar to clause 1.03 in the Legal Charge.

21.  The bank relied on the joint mortgage and sought repayment from Gold for Martin’s own debt.  Lord Scott, whose judgment was adopted by the majority of the bench, said:

“ 40. But the critical issue is not whether [Gold] and [Martin], as well as jointly covenanting to pay, have severally covenanted to pay. The critical issue is what have they covenanted to pay Under sub-clause (1) they have covenanted to pay ‘all sums of money … advanced to the mortgagor by the bank’. The mortgagor means the two of them and/or each of them. So they have covenanted to pay all sums of money advanced by the bank to the two or them and/or to each of them. I do not understand howany process of construction can avoid the conclusion that they have covenanted to pay the sums advanced by the Bank to Martin alone as well as the sums advanced by the bank to them jointly.

41. The point is the same under sub-clause (2).  [Gold] and [Martin] have covenanted to pay or discharge ‘all other indebtednessand/or liabilities whatsoever of the mortgagor to the bank’, i.e. ‘of the two of them and/or each of them’.  So they have covenanted to pay or discharge the indebtedness of [Martin] to the bank as well as their joint indebtedness to the bank.”

…

43. In my opinion, there are no real difficulties of construction arising out of the reference to ‘the mortgagor’ in clause 2.  As was succinctly put by Mr Cousins, following for the bank, clause 2 constitutes a covenant by [Gold] and [Martin] to pay their joint debts to the bank, to pay [Martin’s] debts to the bank and to pay [Gold’s] debts to the bank.

44. This simple construction may leave [Gold] under obligationsthat he had not foreseen and had not intended at the time he signed the joint mortgage.  But he has already succeededin an actionfor negligence against the firm of solicitors who acted for him and, as I understand it, this appeal is being funded by their insurers.” 

(Emphasis by the Bank)

The relevant provisions of the mortgage are essentially the same as clause 1.01 and 1.03 of the Legal Charge.

22.  Mr Khaw SC sought to distinguish AIB Group (UK) Ltd from thepresent case on two grounds.  First, he argued that clause 1.03 contains the important phrases “where the context permits” and “unless the context otherwise requires” which were absent in the corresponding clauses in AIB Group (UK) Ltd.  In that case, both Martin and the partnership had already borrowed loans from the bank before the joint mortgage was arranged.  But, in the present case, the 1^stdefendant’s Personal Loan and Corporate Loans were incurred more than ten years after the Legal Charge was created.  Hence, Mr Khaw SC argued that the 2^nddefendant could not possibly have contemplated that she would be liable for those loans when they did not even exist at all at the time when she executed the Legal Charge.  He submitted, quoting Lloyds TSB Bank plc v Shorney [7], that the context in which the Legal Charge was created simply does not allow the Bank to argue that the obligations of the “Mortgagor” should include those of the 1^st defendant alone since there was no inkling at all of any personal loans incurred by the 1^st defendant alone at the time when the Legal Charge was created, let alone the Corporate Loans incurred by his companies.

23.  I respectfully disagree.  With or without those two phrases, when construing a document, the court must construe it against the factual matrix and consider every word or phrase in its proper context.  Those two phrases add nothing to Mr Khaw SC’s argument.  Furthermore, for reasons as I have already explained in paragraph 16, I reject his argument the fact that the Personal Loans and Corporate Loans were non-existing and not within the contemplation of the 2^nd defendant at the time she executed the Legal Charge has any bearing on the construction of the Legal Charge.  The parties clearly anticipated the possibility of future loans, though not theprecise form in which such loans may take.  Mr Khaw SC’s construction iscontrary to the intention of the parties as reflected by the express language in clause 1.03 and must yield to that intention.  His reliance on the case of Shorney is misplaced.  The guarantee and mortgage in that case were for a fixed amount which was capped by the wife.  However, the bank allowed the husband to incur further liabilities that went beyond the capped amountwithout her consent or knowledge.Then, upon the husband’s default, the wife paidthe fixed amount under the guarantee and mortgage and obtained a discharge.  The wife accepted that she was bound by the guarantee to the extent of the limit she had mutually agreed with the bank.  Of course, she could not be liable for the husband’s indebtedness over and above the cap without her consent.  That was what that case decided.  It is clearly distinguishable from the present case.

24.  The second ground of distinction relied on by Mr Khaw SC is that when the House of Lords considered if Gold should be held liable for Martin’s personal indebtedness under the “all monies” mortgage, it took into account the fact that Gold clearly knew about the level of Martin’s personal indebtedness at the time when the mortgages were arranged. It is true that in AIB Group (UK) Ltd Martin had entered into another mortgage agreementwith the bank prior to the joint mortgage with Gold.  But Gold’s knowledge of that indebtedness was not a factor which Lord Scott considered relevant.  When Lord Scott referred to the fact that Gold’s handling solicitor, who was actually Gold’s brother had all knowledge of Martin’s indebtedness, such references were only made to set out how the particular issue before the court arose.  Gold had obtained indemnity from his solicitors and that action was funded by the solicitor’s insurers.  Thus, Gold’s knowledge hadno significance in the reasoning of the majority of the House of Lords.  This is evident from paragraph 44 of Lord Scott’s judgment quoted in paragraph 21 above.  In the face of what, on a fair construction of the “all monies” mortgage, one co-mortgagor has covenanted, his knowledge of the other co-mortgagor’s other indebtedness is totally irrelevant.

25.  Similar attempts to artificially limit the scope of an “all monies” guarantee by the guarantor’s knowledge to the underlying facilities was rejected by the English Court of Appeal in National Merchant Buying Society Ltd v Bellamy [8].  In rejecting the guarantor’s proposition about the requirement of knowledge, the Court of Appeal explained the rationale as follows:

“ 38. … The proposition is that a guarantee will be treated as in the ‘specific contract’ class if, at the time it is given, the relationship between principal and creditor is governed by a contract of whichthe guarantee knows the terms. In such a case, the guarantee will be regarded as given on the faith of that contract, and as being confined to ‘seeing to’ the principal’s due performance of it. So put, the proposition is dependent exclusively upon the guarantor alone having knowledge of the contractual terms; and, as I follow it, as having the mechanistic effect of turning every guarantee, however expressed, into a ‘specific contract’ guarantee.

39. The proposition is wrong. A guarantee is merely a particular type of contract. The relevant question—in this as inevery case—is ‘what is the nature of the guarantee obligation that the guarantor has assumed?’ …

40.   … On the face of the document, the guarantee was a free­standing, ‘all moneys’ guarantee that was not linked to the credit limit to which CTF was then entitled, its language pointing away from any such linking.  The judge referred to no evidence that might have justified such a limitation being read into the guarantee, nor did Mr Miller.”

26.  The use of “all monies” clause has become a common banking practice. The Legal Charge containing such a clause is the prevalent type of security instrument adopted by most commercial banks in all ordinary transactions. Under such a charge, a co-mortgagor is jointly and severally liable to the lender for all his indebtedness as well as that of his co-mortgagor, unless a limit has been set, whether jointly incurred or alone, and whether incurred at or after the execution of the legal charge.   Whether a co-mortgagor has knowledge of the level of indebtedness of his co-mortgage before entering into the “all monies” mortgage is irrelevant.  Nor is his knowledge of the co-mortgagor incurring new liabilities thereafter.  Such a construction has been given effect by the highest court of England.  I am unable to see how the 2^nddefendant can escape from such consequence by arguing that her husband’s Personal Loans and Corporate Loans were non-existent at the time of execution of the Legal Charge and were not within her contemplation.  At the time she signed the Legal Charge, none of those loans were in existence, and neither were the Mortgage Loans.  But on a fair reading of clause 1.01 as extended by clause1.03, the 2^nd defendant is liable for all present and future indebtedness incurred jointly by her and the 1^st defendant or by either of them alone.  This may not be what she subjectively intended.  This court is not privy to the negotiation of the Legal Charge.  It may not take into account the subjective intention of the 2^nd defendant.  This is the typical case where the ordinary meaning of the words makes sense in relation to the entire document and the factual background, though the consequences may appear hard for the defendants or either of them.  Accordingly, the 2^nd defendant is jointly liable with the 1^st defendant in respect of his Personal Loans and the Corporate Loans of his companies.

MATERIAL CHANGE IN CIRCUMSTANCES

27.  Mr Khaw SC relied on the rule in Holme v Brunskill and argued that the 2^nd defendant as a surety will be released should there be material variation of the terms of the underlying loan agreement between the principal and the creditor without the surety’s consent.  However, Mr Chan argued that Holme v Brunskill was a case about a guarantor’s secondary liability under a guarantee and does not apply in the present case where the 2^nddefendant entered into a joint covenant making herself jointly and severally liable to repay all indebtedness owed by her jointly with the 1^stdefendant or by the 2^nddefendant solely.  In other words, the 2^nddefendant’s obligation is a primary obligation as opposed to a secondary one.  Here, the 1^st defendant’s obligation in respect of the Corporate Loans is one of a secondary obligation in accordance with the respective facilities letters.  However, that obligation is made a primary obligation under clause 1.01 of the Legal Charge by virtue of the phrase “whether as principal debtor or as surety”. 

28.  Mr Khaw SC replied that Mr Chan’s submission is contrary to the authorities.  He relied on Bellamy and Lloyds TSB Bank plc v Shorney.  I am perplexed by his reliance on Bellamy because in that case the English Court of Appeal actually did not follow Holme v Brunskilland held that the rule only applied to a guarantee of the due performance of obligations arising under a specific contract; it could not be invoked to release a guarantor under the type of guarantee given in respect of obligations arising out of a contemplated course of dealing, such as an “all monies” guarantee.  Rimer LJ said:

“ 33. By way of contrast to that type of case, Phillips J, in the second paragraph, identified the type of guarantee that is given in respect of obligations arising out of a contemplated course of dealing rather than under a specific contract. In those circumstances, provided the course of dealing remains within the scope of that contemplated by the guarantee, the details of the manner of dealing as between principal and creditor are of no concern to the guarantor; and any variations in them will not affect the continuing nature of his liability. A typical example is the freestanding ‘all moneys’ guarantee in respect of present and future indebtedness commonly given by directors to banks in respect of their company’s liabilities. In any case where a question arises as to the scope of the guarantee, the answer must turn on the true interpretation of the guarantee. The Mercers Co case went to the Court of Appeal ([1992] 3 All ER 57n, [1992] 1 WLR 792n, [1992] 2 Lloyd’s Rep 365). Phillips J’s decision was reversed on the facts, but his quoted statement of principle was not the subject of criticism.”

The rule in Holme v Brunskill is not as wide or over-sweeping as Mr Khaw SC submitted.It applies only to guarantees of the due performance of obligations arising under a specific contract and not to obligations arising out of a contemplated course of dealings, such as an “all monies” guarantee. 

29.  The other authority relied on by Mr Khaw SC is Lloyds TSB Bank plc v Shorney in which the court considered whether a material increase in the husband’s primary liability would prejudice the wife’s position under an “all monies” mortgage.  I have briefly mentioned about this case before.  It is a case which was determined on its peculiar facts.  It should be recalled that the wife entered into a mortgage and guarantee for a fixed amount.  Then, without her knowledge and consent, the bank allowed the husband to incur liabilities beyond the fixed limit.  Upon the husband’s default, the wife paid the fixed amount under the guarantee and mortgage, and obtained a discharge and a statutory right of subrogation of the bank’s mortgage over the property charged.  The bank argued that the right of subrogation could not be effective given the term under the mortgage that the wife would not enforce any security right of the property until the bank was fully paid.  The issue in that case was whether the wife’s statutory right of subrogation could be barred by one of the clauses in the guarantee and mortgage.  The English Court of Appeal found that the bank could not rely on such a clause to bar the wife from exercising her security of the property upon subrogation as the bank had not informed her when they allowed the husband to incur further liabilities so that the wife was deprived of her choice to terminate the guarantee and mortgage as she would be entitled to.  This authority has no relevance at all to the question of whether the rule in Holme v Brunskill is applicable to an “all monies” charge.  The rule was not even mentioned in the judgment.

30.  The 2^nd defendant’s argument based on material changes in circumstances is wholly unmeritorious.

UNDUE INFLUENCE

The 2^nd defendant’s case

31.  The 2^nd defendant sought to vitiate the Legal Charge on the basis of presumed undue influence based on her allegations that:

(1)  she had placed complete trust and confidence in the 1^st defendant on financial decisions;

(2)  the Legal Charge was manifestly disadvantageous to her and vastly to the advantage of the Bank in that it obtained an “all monies” mortgage when all it needed was a specific mortgage to cover the Mortgage Loan; and

(3)  she could therefore rely on the evidential presumption that the Legal Charge was procured by undue influence by the Bank and/or the 1^st defendant.

The law of undue influence

32.  Mr Chan submitted that the 2^nd defendant’s approach underlying her claim based on undue influence is erroneous in law.  He outlined the law of undue influence as follows, which I agree as representing the correct statement of law.

33.  The Court of Final Appeal in Li Sau Ying v Bank of China (Hong Kong) [9]has given (i) a clear warning against the misconception of the expression “evidential presumption of undue influence” and (ii) reminded that the focus should be put on whether there is sufficient evidence to infer undue influence.  It said:

“ 30. The strong message from Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 therefore is that, particularly in Class 2B cases, concentration on a so-called presumption of undue influence is likely to detract from the real issue, namely, whether the evidence justifies a conclusion that the impugned transaction was procured by undue influence. …

34. I do not wish to leave this without expressing the hope that in future cases, where undue influence has to be proved but where the relationship between the parties is not a relationship that falls within Slade LJ’s Class 2A category, the parties will concentrate on whether the evidence justifies the inference that, on a balance of probabilities, the impugned transaction was procured by undue influence, that is to say, by an abuse by the alleged dominant party of the trust and confidence reposed in him by the allegedly subservient party.  References in such cases to, and attempts to invoke the assistance of, an alleged evidential presumption of undue influence are, in my opinion, likely to be, as they have been in this case, a source of confusion and an impediment to the evaluation of available evidence.”

34.  In Royal Bank of Scotland Plc v Etridge (No 2) [10], the House of Lords made it clear that the label “manifest disadvantage” had given rise to undesirable ambiguity and should be discarded.  Lord Nicholls said that the real question is whether the “transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it [11].

35.  In the same case, the House of Lords also clarified the once misconceived application of the law of undue influence in the husband and wife scenarios.  Lord Nicholls said:

“ 27. The problem has arisen in the context of wives guaranteeing payment of their husband’s business debts. In recent years judge after judge has grappled with the baffling question whether a wife’s guarantee of her husband’s bank overdraft, together with a charge on her share of the matrimonial home, was a transaction manifestly to her disadvantage.

28. In a narrow sense, such a transaction plainly (‘manifestly’)is disadvantageous to the wife.She undertakes a serious financial obligation, and in return she personally receives nothing. But that would be to take an unrealistically blinkered view of such a transaction. Unlike the relationship of solicitor and client or medical adviser and patient, in the case of husband and wife there are inherent reasons why such a transaction may well be for her benefit. Ordinarily, the fortunes of husband and wife are bound up together. If the husband’s business is the source of the family income, the wife has a lively interest in doing what she can to support the business. A wife’s affection and self-interest run hand-in-hand in inclining her to join with her husband in charging the matrimonial home, usually a jointly-owned asset, to obtain the financial facilities needed by the business. The finance may be needed to start a new business, or expand a promising business, or rescue an ailing business.

…

30. I return to husband and wife cases. I do not think that, inthe ordinary course, a guarantee of the character I have mentionedis to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband. Wives frequently enter into such transactions. There are good and sufficient reasons why they are willing to do so, despite the risks involved for them and their families. They may be enthusiastic. They may not. They may be less optimistic than their husbands about the prospects of the husbands’ businesses. They may be anxious, perhaps exceedingly so. But this is a far cry from saying that such transactions as a class are to be regarded as prima facie evidence of the exercise of undue influence by husbands.

31. I have emphasised the phrase ‘in the ordinary course’. There will be cases where a wife’s signature of a guarantee or a charge of her share in the matrimonial home does call for explanation. Nothing I have said above is directed at such a case.

A cautionary note

32. I add a cautionary note, prompted by some of the first instance judgments in the cases currently being considered by the House. It concerns the general approach to be adopted by a court when considering whether a wife’s guarantee of her husband’s bank overdraft was procured by her husband’s undue influence. Undue influence has a connotation of impropriety. In the eye of the law, undue influence means that influence has been misused. Statements or conduct by a husband which do not pass beyond the bounds of what may be expected of a reasonable husband in the circumstances should not, without more, be castigated as undue influence. Similarly, when a husband is forecasting the future of his business, and expressing his hopes or fears, a degree of hyperbole may be natural. Courts should not too readily treat such exaggerations as misstatements.

33  Inaccurate explanations of a proposed transaction are a different matter.  So are cases where a husband, in whom a wife has reposed trust and confidence for the management of their financial affairs, prefers his interests to hers and makes a choice for both of them on that footing.  Such a husband abuses the influence he has.  He fails to discharge the obligation of candour and fairness he owes a wife who is looking to him to make the major financial decisions.”

36.  These quotations from the Court of Final Appeal of Hong Kongand the House of Lords of the United Kingdom are apposite and sufficient todispose of this issue.It is trite law that the relationship between husband and wife is not one which falls within class 2A of Slade LJ’s category.  The party asserting undue influence bears the burden of proof.  Thus, trust and confidence are not presumed and have to be proved by the wife asserting it.  The 2^nd defendant has to adduce such evidence on which undue influence could be inferred.  The function for this court is to apply these principles to the facts as alleged by the 2^nd defendant and as revealed by the incontrovertible evidence.

Undue influence by the Bank

37.  Apart from alleging that the Legal Charge was manifestly disadvantageous to her but vastly advantageous to the Bank, the 2^nddefendant has not adduced any evidence of influence exerted on her by the Bank, let alone that the influence is undue, ie an abuse by the Bank as the dominantparty of the trust and confidence reposed in it by the subservient 2^nddefendant.  There is no evidence of any previous dealings between the Bank and the 2^nddefendant.  There is no allegation that the 2^nddefendant was ever in touch with any personnel of the Bank at all, let alone any representation made to her.  There is no evidence that the Bank and the 2^nddefendant were engaged in a dominant and subservient relationship. 

38.  The allegation that the Legal Charge was manifestly disadvantageous to the 2^nd defendant but vastly advantageous to the Bank is, in my view, neither here nor there.  Such “all monies” legal charge is a commonly used commercial document in the banking practice.   It is a quid pro quo for the loan agreement.   She was free to turn to other banks.  Indeed, she and the 1^st defendant could have avoided its effect by not making further loans from the Bank.  Of course, in reality it is difficult to do so, unless they have some other security to offer.

39.  The 2^nd defendant made the following allegations in paragraph 16 of her affirmation:

“ 16. At the time of execution of the Legal Charge on or about 30^th September 2000, the legal executive, Wong Pui Sze did not explain to me the terms of the Legal Charge nor the fact that what I was signing was an ‘all monies legal charge’ on the Property but merely witness my signature. I was misrepresented by the Plaintiff and the solicitor’s firm to sign the Legal Charge believingthat it was only to secure the real estate loan. I was misled as tothe true nature of the transaction when I signed on the Legal Charge. All along, the information disclosed in the above documents was that it was a fixed sum mortgage loan. It was granted to finance the purchase of the property.

17. I aver that my signature on the Legal Charge was procuredby the exercise of undue influence and/or misrepresentation uponme by the Plaintiff and the 1^st Defendant and that I do not understand and appreciate the consequences of placing my signature on the Legal Charge I do not understand the true meanings and effects of the Legal Charge.  The true extent of liability has never been explained.”

40.  While the 2^nd defendant alleged that her signature on the Legal Charge was procured by undue influence and/or misrepresentation by the Bank and the 1^st defendant, she gave no particulars.  It was just a bare assertion.  She alleged that the legal executive of the solicitor firm had not explained to her about the meaning and effect of the “all monies” Legal Charge.  She was represented by a solicitor firm of her choice introduced to her by her estate agent.  Though the solicitor firm represented both the Bank and the defendants, when witnessing the execution of the Legal Charge, it must doso as solicitor for the defendants.  Remarkably, the Legal Charge contained an interpretation clause to the effect that the Legal Charge had been explained to the 2^nd defendant.  The clause was signed by the very same legal executive whom the 2^nd defendant alleged had not explained the Legal Charge to her.  This is a piece of contemporaneous documentary evidence which requires strong and cogent evidence to rebut.  Furthermore, the 2^nd defendant’s allegation is a very serious one of misconduct against a staff of her own solicitor firm.  The standard of proof is very high.  But the 2^nd defendant has never attempted to rebut that evidence save by her own bare assertion.  Her evidence is incredible in the face of the contemporaneous documentary evidence.  Even accepting her evidence that the legal executive had not explained the Legal Charge to her, it does not by itself or together with any other evidence presented in court amount to proof of undue influence.

41.  The theme of her defence of undue influence and also of misrepresentation is that the Legal Charge had not been explained to her at the time she signed it; she did not understand its nature and effect; and specifically she did not know that she would be liable for the future indebtedness of the 1^st defendant arising his Personal Loans and Corporate Loans.  It is trite law that mere ignorance of the substance of the document which she freely signed, short of fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity is sufficient to vitiate the instrument on which one affixed his signature: see Ming Shiu Chung & Others v Ming Shiu Sum & Others [12].  The following passage of the judgment of Ribeiro PJ in that case is pertinent:

“ 84. … Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms)of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

And in Bank of China (Hong Kong) Ltd v Fung Chin Kan [13], Litton NPJ acknowledged:

“ … the fundamental principle that, generally speaking, when a person sign a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he orshe can take the simple precaution of not signing until its contents have been fully explained and understood.”

If the 2^nd defendant genuinely feel aggrieved by the lack of explanation by the legal executive, she may have a cause of action against the solicitor firm, but not the Bank.  On the evidence she adduced, it is simply inconceivable how she could prove a case of undue influence against the Bank.

Undue influence by the 1^st defendant

42.  Similarly, the 2^nd defendant’s allegation of undue influence by the 1^st defendant is devoid of content.  She never asserted actual undue influence, whether in the form of deception, coercion or overbearing by the 1^st defendant.   There is simply no evidence or particulars as to how she and the 1^st defendant interacted in the circumstances leading to the execution of the Legal Charge. 

43.  More importantly, in paragraph 27 of her affirmation, the 2^nd defendant averred:

“ If I had known the Property would be encumbered indefinitely and to such extent of liability, I would have refused as I would be at risk of losing the family home that we have lived for years.”

Her assertion suggests that she could actually refuse to follow the 1^st defendant’s wish, ie she had a completely free will vis-à-vis the 1^st defendant in their financial affairs. 

44.  Mr Khaw SC accepted that the mere fact that a wife signed an “all monies” mortgage is neither here nor there.  But he emphasized strongly on the fact that the 2^nd defendant’s liabilities are not limited to the Mortgage Loan but also cover the Personal Loans and Corporate Loans which did not even exist at the time the Legal Charge was created.  He argued that the 2^nd defendant’s assumption of such extended liability is inexplicable unless on the basis of some impropriety exercised on her by the 1^st defendant.  Such arguments have been watered down by Lord Nicholl’s dicta which I have quoted extensively in paragraph 35 above.

45.  The 2^nd defendant has been a housewife since 1995 after giving birth to her child.  The 1^st defendant was engaged in garment industry as a business partner with others.  Assuming that to be the situation in 2000 when the Legal Charge was executed to purchase the Property, the business must be the sole source family income.  This was precisely the “ordinary” situation envisaged by Lord Nicholls where the fortunes of the husband and wife are bound up together.  The 2^nd defendant must have a lively interest in doing what she could to support the business and obtain financial facilities needed by the business.  There is no contrary evidence from the 1^st or 2^nd defendant.  In my view, an “all monies” Legal Charge cannot be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband.

46.  Mr Khaw SC also argued that undue influence has all to do with informed consent and that a strong inference of undue influence can be drawn from the fact that the 2^nd defendant signed the Legal Charge without having it been explained to her; that the Personal Loans and Corporate Loans did not exist at all when the Legal Charge was executed; that the 2^nddefendant never participated in the business of the 1^st defendant’s companies; that the Bank and the 1^st defendant failed to take any or any reasonable steps to ensure that she was fully aware of the extent of risks and/or liabilities assumed by her; and that she receive no independent legal advice at the time when the Legal Charge was executed.  These facts or arguments have been raised and dealt with in relation to the 2^nddefendant’s allegation against the Bank or in other context.  For the same reason, these arguments are also unmeritorious insofar as they are directed at the 1^st defendant.  I do not find it necessary to repeat my reasons for my conclusion.  Mr Khaw SC also quoted a number of decisions in response to the authorities quoted by Mr Chan.  As he said, these cases are all fact sensitive.  I have considered them but do not find it necessary to deal with them. 

47.  The 2^nd defendant has utterly failed to condescend on particulars of the undue influence exerted by 1^st defendant and has utterly failed to adduce any evidence on which such influence could be inferred.  Her claim of undue influence does not even get off the ground.  Indeed, her own affirmation suggests that she was the master of her own will and would not have signed the Legal Charge had she known of its effect.  This evidence negates her claim of undue influence.  As for her allegation of lack of knowledge, it is contradicted by the interpretation clause.      

48.  My conclusion is that the defence of undue influence against the Bank and the 1^st defendant fails.  Mr Khaw SC submitted that the various matters advanced by the 2^nd defendant should not be determined summarily without a full hearing of all oral testimony at trial and that I should adjourn the hearing for filing of a further round of evidence as in Wing Hang Bank Ltd v Liu Kam Ying [14]. I do not find that necessary as the existing materials have failed to show any glimpse of a valid defence.

Counter-restitution

49.  Presumably out of abundance of caution, Mr Chan submitted that if this court should find that the signature of the 2^nd defendant on the Legal Charge was procured by undue influence, the principle of counter-restitution will become operative.  In view of the conclusion reached in the preceding sub-section, there is no need to deal with this issue.  However, I shall deal with it very briefly.

50.  Mr Khaw SC objected to this issue being argued as it has never been raised and the 1^st and 2^nd defendants have never had a chance to adduce evidence on the extent of beneficial interest that each of them held.  Counter-restitution is a matter of law which need not be pleaded.  The plea of undue influence is to be raised by the defendant.  It will be a non-sensical exercise for the plaintiff to anticipate such a plea and plead counter-restitution.  It is just a legal argument which the plaintiff has no factual evidence to adduce, except for rebuttal.  If a defendant seriously pleads undue influence, he expects he will succeed.  If he does succeed, it must necessarily follow that the plaintiff will raise argument on counter-restitution, just as day follows night.  Thus, it would have been reasonable for the defendant to anticipate such argument and adduce evidence of his contribution if he has any claim to the beneficial interest subject to counter-restitution.  In any event, in an appropriate case, the court has discretion to grant leave for filing of additional evidence.

51.  The authority for this proposition is the English Court of Appeal decision in Dunbar Bank Plc v Nadeem [15]. Under this principle, if undue influence is proved, the 2^nd defendant’s beneficial interest in the property should be so rescinded and restored to the 1^st defendant.  Mr Khaw SC’s argument was that the decision on this issue was obiter as the Court of Appeal overturned the first instance decision on the wife’s defence based on undue influence.  It was only on this footing that the Court of Appeal went on to consider what the position would have been if the transaction were set aside by reason of undue influence.  Though obiter, the principle was advanced on solid ground and has never been overruled.  Next, Mr Khaw SC argued that Nadeem has been subjected to criticism by the learned authors of Duress, Undue Influence and Unconscionable Dealing [16].  In my view, the authors’ criticism was on the Court of Appeal’s approach in identifying the benefit which the wife had to return by way of counter-restitution as the beneficial interest in the lease which she had acquired as a consequence of the transaction as opposed to simply returning half of the sum advanced by the bank in accordance with what has consistently been laid down by the authorities.  That was what the authors considered artificial and wrong in principle as it is liable to lead to anomalous results.  The criticism was not against counter-restitution as such, but against what the Court of Appeal said should be counter-restituted.  That question does not arise in the present case.

MISREPESENTATION

The 2^nd defendant’s case

52.  The 2^nd defendant’s case of misrepresentation as disclosed in paragraph 16 of her affirmation is that she was misrepresented by the Bank and the solicitor firm to sign the Legal Charge believing that it was only to secure the Mortgage Loan as opposed to an “all monies” Legal Charge.  The misrepresentation was silence on the part of the legal when witnessing her execution of the Legal Charge, the facility letter and the solicitor’s completion statement, which led her to the belief that the Legal Charge was only in respect of the Mortgage Loan.

The law

53.  It is trite law that the equitable remedy of rescission is available to a representee who can show:

(1)  that a false representation was made to him by or on behalf of the other party to the contract;

(2)  that either the representation was made fraudulently or it was a representation of fact; and

(3)  the representation acted as an inducement to his decision to enter into the contract.

See: Cartwright, Misrepresentation, Mistake and Non-Disclosure [17].

The misrepresentation

54.  Even assuming that the legal executive who witnessed the 2^nd defendant’s execution of the Legal Charge was acting as agent of the Bank, it is trite law that mere silence is not misrepresentation: see Bank of China (Hong Kong) Ltd v Leung Wai Man [18].

55.  As for the other two documents relied on by the 2^nd defendant, she simply cannot identify any statement of fact in those documents which were false in the express or implied sense.  I fail to see how the completion statement prepared by her solicitor contain any misrepresentation.  It was just a statement of account as between the defendants and their solicitor in the property transaction and the preparation of the Legal Charge.  It contained no false representation of fact of the kind alleged by the 2^nd defendant.  As for the facility letter, paragraph 4 of the Terms and Conditions in that letter which I have referred to earlier contained the following unambiguous and unequivocal statement:

“ Security

a  Home Investment Plan

This facility and any facilities made available in the future will be secured by an ‘all monies’ legal charge over the property stated overleaf.  In the Bank’s prescribed form, prepared by the solicitors representing both the Bank and you …”

Then at the end of the facility letter, the 1^st and 2^nd defendants signed below the attestation clause which reads:

“ To: Standard Chartered Bank

I/We accept the terms and conditions set out above …”

The facility letter unambiguously mentioned future facilities and the security of an “all monies” legal charge to be signed by the defendants.  With her signature at the end of the attestation clause, she put an end to her defence of misrepresentation.

WAIVER

56.  In his supplemental submission, Mr Khaw SC raised for the first time the defence of waiver arising from the 2^nd defendant’s continual repayment of the Mortgage Loan and the Bank’s receipt after it had called in all the loans.  He referred me to the following passage from Wilken & Ghaly, The Law of Waiver, Variation and Estoppel [19] :

“ Accepting payment under the facility

   The most likely form of unequivocal representation by the lending bank will be the acceptance of payments under the facility.  It follows that the acceptance of interest payments by the lending bank may be evidence that it has waived its rights. However, it must be remembered that the lending bank will be responding to a breach that would entitle it to call in and determine the facility.  Calling in the facility accelerates the repayment of interest and principal by the borrower but will have no effect on obligations of the borrower which have already accrued.  It follows that, as the lending bank is waiving its rights to call in the facility, the unequivocal representation must relate to the future obligations of the borrower.  Therefore, the acceptance of accrued interest will not, without more, found a waiver nor will the acceptance of interest payments after the facility has been called in.  It is only if the lending bank accepts interest payments in advance, or as a confirmation of a continuing, future relationship between itself and the borrower, that a waiver will definitely occur.”

(The 2^nd defendant’s emphasis underlined. 
The Bank’s emphasis in bold and italic print.)

57.  The gist of Mr Khaw SC’s argument is that once the loans havebeen called in, the bank cannot accept any payment from the borrower other than full payment of principal and interest in one lump sum.  He relied on the first two sentences of the above passage, which have been underlined.  But that argument falls flat on the second half of that passage high-lighted by Mr Chan in bold and italic print.  The rationale of the second half of that passage is contained in the lines in between the two parts of that passage.  The passage read as a whole makes good commercial sense.  Calling in a facility could have no effect on obligations which have accrued.  To constitute waiver, the acceptance must relate to future obligations of the borrower.  The 2^nd defendant’s argument does not make legal or business sense.  It will prejudice the borrower by disallowing him to reduce his liability to interest by making part payment; and will prejudice the bank by preventing it from reducing its exposure to doubtful or likely bad debts by receiving part payment.  Mr Khaw SC’s argument is also disapproved by Seal v Gimson [20] which he quoted.  In that case, Coleridge J held that the mere receipt of interest after a demand for payment of the principal and interest amounts to a waiver.  On the fact, it is simply inconceivable as to how the mere acceptance of monthly payments could amount to a detriment to the 2^nd defendant, when she was merely discharging accrued loans and interest that she was obliged to pay in any event.

58.  Furthermore, as submitted by Mr Chan, any suggestion of waiver is clearly barred by the provisions of the Legal Charge, especially clauses 17 and 18.06 which read as follows:

“ 17. No failure or delay by the Bank in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under the law or any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Deed, shall not be affected or impaired thereby.”

“ 18.06 Any amendment or waiver of any provision of this Deed and any waiver of any default under this Deed shall only be effective if made in writing and signed by the Bank.”

Apart from the very extensive bar against waiver which the 2^nd defendant accepted under the Legal Charge, clause 18.06 expressly provided that a waiver must be in writing and there is no evidence that any such waiver had been given by the Bank in writing.  This defence of waiver must fail.

CONCLUSION

59.  The 1^st and 2^nd defendants jointly entered into a Legal Charge containing an “all monies” clause which also covered the indebtedness incurred by 2^nd defendant solely and that of his companies guaranteed by him.  By virtue of the “all monies” Legal Charge, the 2^nd defendant bears the repayment obligation in respect of the 1^st defendant’s Personal Loans and Corporate Loans, though she has never anticipated that the Legal Charge would have such effect.  Her counsel has advanced all possible defences on her behalf.  Those defences are unmeritorious and are all dismissed. 

60.  Accordingly, I enter judgment for the Bank against the 2^nd defendant in respect of the outstanding balances and interest under the Mortgage Loan, the Personal Loans and the Corporate Loans.  To the extent not covered by the judgments against the 1^st defendant, interest shall be calculated at the contractual rate under the Legal Charge from date of default up to 7 July 2015; at prime rate plus 1% from 8 July 2015 until the date of this judgment and thereafter at judgment rate until full payment. 

61.  Similar judgments have been obtained against the 1^stdefendantand have become final and conclusive.  Accordingly, I also enter judgment for vacant possession of the Property against both defendants.  I allow the defendants relief from delivery of immediate possession for a period of six months from the date of this judgment upon their paying monthly in advancea sum equivalent to the monthly instalment under the Mortgage Loan.  For that purpose, there be liberty to apply. 

62.  The 2^nd defendant shall pay the Bank’s costs of this action on indemnity basis as provided under clause 10.01(b) of the Legal Charge.  I make no order as to costs as against the 1^st defendant as he has not participated in these proceedings and appropriate costs orders must have been made in respect of other proceedings under this action in which he participated or was involved.