DBS BANK (HONG KONG) LTD v. GUANXIANG (HK) TRADING LTD AND OTHERS

HCMP 1767/2017

[2018] HKCFI 1392

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS 1767 OF 2017

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D E C I S I O N

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The application and the hearing

1.  The is a mortgage action pursuant to Order 88 of the Rules of the High Court brought by the plaintiff for payment of moneys and delivery of possession.

2.  The plaintiff is a bank.  The 1^st and 2^nd defendants (“D1 and D2”) were its customers.  The 3^rd defendant (“D3”) at some stage became a director and shareholder of D1 and D2.  On the face of the document, he was the mortgagor under three mortgages all dated 11 March 2016 (“the Mortgages”).  Three residential properties (“the 3 Properties”) registered in his name were mortgaged thereby to the plaintiff to secure the indebtedness of D1 and D2.  Two of those properties are at Tower 12 of Mayfair By The Sea II (“Property 1”and “Property 2”), whilst the third is at Tower 11 (“Property 3”).  On the face of the document, D3 has also signed a Guarantee and Indemnity dated 4 December 2015 (“the Guarantee”) in favour of the plaintiff to secure the indebtedness of D1.   

3.  On 16 August 2017, the plaintiff took out an Originating Summons against the defendants pursuant to Order 88 of the Rules of the High Court (“the Originating Summons”).  The plaintiff seeks:

(a)   against D1 and D2 repayment of certain moneys, and

(b)   against D3 repayment of those same moneys pursuant to the Mortgages and the Guarantee, and delivery of vacant possession of the three Properties. 

4.  D1 and D2 have failed to file any Acknowledgement of Service.  Monetary judgments were entered against them on 14 September 2017.

5.  D3 contests the Originating Summons.  His case is that the Mortgages and Guarantee are liable to be set aside for, principally, misrepresentation.  In any event, he contends that this is not a case suitable for summary disposal.  He seeks an order that it be ordered to continue as if commenced by Writ.  The plaintiff maintains that the case is a straight-forward one, and is suitable for summary disposal. 

Intended intervener

6.  On 13 April 2018, 6 days before the hearing, a Mr Li Shaotao (“Li”) filed a summons (“the Intervening Summons”) for an Order that he be permitted to intervene in these proceedings and be joined as the 4^th defendant.  He is D3’s cousin-in-law.  The basis of his application is that he is in fact the beneficial owner of the three Properties, that D3 has only been holding them on trust for him, and that he (Li) and his family have been in actual occupation of Properties 1 and 2. He further seeks an Order that the proceedings by the Originating Summons be continued as if begun by Writ.

7.  The Intervening Summons came before me on 19 April 2018, the same day when the substantive hearing of the Originating Summons was set down to be heard. Mr Michael Lok, counsel appearing for the plaintiff, invited me to consider the evidence currently available and dismiss the same, or in the eventuality of me not preparing to do so, adjourn the same with directions for the filing of further evidence.  I was not prepared to truncate the consideration of the Intervening Summons as suggested. In the end, I gave directions for the filing of evidence and ordered the Intervening Summons to be adjourned for full argument.

8.  I then proceeded to consider whether I should, in the light of the Intervening Summons and its adjournment, also adjourn the substantive hearing of the Originating Summons until after the disposal of the Intervening Summons. I noted in this regard that the battle between the mortgagee and mortgagor on the one hand, and the battle between the mortgagee and the beneficial owner on the other, are theoretically distinct.  Mr Lok also urged me to proceed with the substantive hearing.  His stance was that the case was appropriate for summary disposal, and whilst he accepted that no order for possession could be granted before hearing Li, he submitted that the plaintiff should not be delayed in obtaining a monetary judgment against D3.  I am also keen not to lose one full day of court time.  I decided to proceed with the substantive haring of the Originating Summons.

The facts and the evidence

9.  The material facts summarized below are gleaned from the affirmations filed: for the plaintiff—two affirmed to by Ma Ho Kin (“Ma”,Assistant Vice President of the Special Assets Management Department of the plaintiff) and one by Lam Harmony Yin (“Lam”, an assistant solicitor of Messrs Woo Kwan Lee & Lo (“WKLL”) who was involved in the preparation of the Mortgages); and for D3—two by himself. 

10.  D1 and D2 were customers of the plaintiff.  Before me there are 8 facility letters which the plaintiff had issued in their favour (7 of which dated between 25 September 2012 and 24 March 2016 in favour of D2, and 1 dated 3 December 2015 in favour of D1).  There are also a General Commercial Agreement dated 27 June 2012 entered into by D2 with the plaintiff, and another similar agreement dated 4 December 2015 by D1.

11.  D3 was born in the Mainland.  He received education in Hong Kong up to Form 5.  He said that he was close to illiterate in English, and had no prior experience in handling corporate financial affairs. 

12.  D3 was (and still is) the registered owner of the 3 Properties.  He however said that he only has 10% beneficial interest in them.  The other beneficial owners he said are his elder cousin Gao You Huai (“Gao”) holding 40% and his cousin-in-law Li holding the balance. 

13.  According to D3, he did not know about the actual business operation of D1 and D2.  What he said he knew was that both D1 and D2 were owned and controlled by a man with Mainland background called Yang Xiao Yong (“Yang”).

14.  According also to D3, the employees from the plaintiff who served D1, D2, Yang and him at various stages were mainly Victor Yu (“Yu”)and Selina Shang (“Shang”).  That was not disputed by the plaintiff. Indeed, in Ma’s 2^nd affirmation, he described Shang as “a Relationship Manager of the Plaintiff” [1], and that “… it is admitted, and as stated in the Facility Letters, that the Designated Relationship Managers for [D1 and D2] were Andrew Tam, Victor Yu and Selina Shang, ex-employees of the Plaintiff.”[2] 

15.  I note immediately that the plaintiff has not adduced any evidence from Andrew Tam, Yu, or Shang.  I note further that Ma had no contemporaneous knowledge of the events which led to the issue of the Originating Summons.  His evidence was based solely on documents and records.  He said at paragraph 40 of his 2^nd affirmation that “It is admitted that I have never personally communicated with [D3].  I was not the responsible officer handling the facilities granted by the Plaintiff to [D1] and/or D2.  I stress however that I am authorized to make my 1^stAffirmation and this my 2^nd Affirmation for and on behalf of the Plaintiff in these proceedings.”

16.  On 27 March 2014, 24 November 2014 and 31 July 2015, Yang caused D2 to enter into three sets of agreements variably called “Non-Deliverable USD/CNY European Knock-in Ratio Ladder Forward” agreement, “Non-Deliverable Ratio Capped Forward” agreement and “Non-Deliverable USD/CNY Ratio Capped Forward” agreement.  They were some sort of foreign exchange linked investment contracts.  I call them “the Forex Agreements” below.  How they worked is irrelevant for our present purposes.  What is important is that apparently, in early January 2016, the Chinese Yuen offshore spot rate was at such a level that D2 decided to give instructions for the early termination of those Forex Agreements.  Upon such early termination, and as confirmed by the plaintiffin its letter of 20 January 2016, sums in the total amount of USD 17,930,000 had by 15 January 2016 become due and payable by D2 to the plaintiff.  This indebtedness of D2 under the Forex Agreements was, when incurred, unsecured.  As things turned out, this amount of indebtedness was subsequently turned into an instalment loan from the plaintiff to D2 and secured by the Mortgages.  I will come back to this.

17.  According to D3, he was introduced to Yang by Gao in November 2015.  On a number of occasions subsequent to that, it was represented to him by Yang through Gao that since he was a Hong Kong resident, if he became a shareholder/director of D1/D2 on record and if he was willing to mortgage the 3 Properties, the plaintiff could offer mortgage loans on good commercial terms, and the loans could be used by Gao for investments. 

18.  Subsequently, D3 indeed became a director and shareholder of both D1 and D2.  He said that he did not know when the share transfers or appointment took place.  According to the documents registered with the Companies Registry:

(a)   In respect of D1:

(1)   he has become a 50% shareholder since 12 November 2015.  The Annual Return of D1 which recorded this was however only lodged with the Companies Registry on 22 September 2016; and

(2)   he was appointed the sole director on 3 February 2016, and the relevant form (ND2A) was filed on 4 February 2016.

(b)   In respect of D2:

(1)   he has become the sole shareholder since 28 December 2015.  The Annual Return of D1 which recorded this was however only lodged with the Companies Registry on 21 July 2016; and

(2)   he was appointed the sole director on 17 December 2015, and the relevant form (ND2A) was filed on 18 December 2015.

D3 said that he had never paid any consideration for those shares, and that despite his appointment as director of D1 and D2, he had never taken part in their management.  He said that he had not in fact attended their offices.

19.  On 3 December 2015, the plaintiff issued a facility letter in favour of D1 (“the 3/12/2015 Facility Letter”).  That appears to be the only facility letter which the plaintiff had issued in favor of D1.  By virtue of that facility letter, the plaintiff made available to D1 various facilities up to HK$42,000,000.   Disbursement of the facilities was however subject to a number of express “Important Conditions”.  Two of those conditions were that disbursement of the facilities would only be allowed after completion of the Mortgages by D3, and after “new company search showing [D3] is the director holding half shares of the Borrower”.  Under the terms of that facility letter, the receipt by the plaintiff of the Guarantee to be executed by D3 was also a condition precedent. 

20.  The 3/12/2015 Facility Letter was signed in acceptance by Yang on behalf of D1.  At that time, D3 had not been appointed its director.  Whilst D3 was according to the Annual Return of D1 transferred 50% of its shares on 12 November 2015, that Annual Return was not lodged with the Companies Registry until 22 September 2016.

21.  The Guarantee was dated 4 December 2015, one day after the 3/12/2015 Facility Letter.  On the face of the document, D3 has signed on the same, and thereby “agrees and undertakes with the [plaintiff] to pay to the [plaintiff] on demand all sums of money and liabilities … whether certain or contingent, now or hereafter owing or incurred to the [plaintiff] by [D1]”.

22.  According to D3, the circumstances leading to the execution of the Guarantee were as follows.  Sometime in late 2015, Yang told him that D1 would open a bank account with the plaintiff and asked him to sign the account opening documents.  Yang further informed him that relationship manager from the plaintiff would contact him directly in that regard.  In about December 2015, Yu and Shang travelled to Shenzhen to meet him.  D3 was presented with some documents to sign (which D3 said he subsequently discovered included the Guarantee).  At paragraph 124 of his 1^st affirmation, D3 said that:

“ At the said meeting, to my best recollection, Mr. Yu introduced Ms. Shang and he said that Ms. Shang would ask me to sign some account opening documents for the account of Guanxiang. As I was not competent in reading any English document, I asked Ms. Shang to explain the nature of the document to me. Ms. Shang, knowingly that the 2^nd Guarantee was a ‘Guarantee and Indemnity’, had fraudulently misrepresented, or in the alternative negligently misrepresented to me and in the further alternative innocently misrepresented to me there were some general banking documents for the account of Guanxiang. During the said meeting, Ms. Shang never told me one of the documents was in fact a ‘Guarantee and Indemnity’.”

23.  As mentioned above, the plaintiff has not adduced any evidence from either Yu or Shang.  There is no direct evidence from the plaintiff as to how the 3/12/2015 Facility Letter were negotiated and agreed upon, and how the Guarantee was executed.

24.  Ma was the main witness from the plaintiff.  The effect of his evidence in this regard was that D3 had been duly advised and aware of the legal effects of the Guarantee before his execution of the same, and that D3 had been offered every chance to seek independent legal advice on the same. 

25.  Ma was however not present during the execution of the Guarantee.  His evidence was confined to comments and observations which he believed he could make from the contents of various documents.

26.  One of the documents Ma referred to, which Mr Lok in his submissions relied on heavily, was the “Notice (to individual third party security provider)”.  It was a bilingual document.  It was addressed to D3.  It sought to set out the effects of the Guarantee.  It was however not signed by D3, but only by a representative of the plaintiff. 

27.  Another document Ma referred to was a document entitled “Confirmation and Acknowledgement” (“the Confirmation and Acknowledgement”).  It was dated 4 December 2015 and apparently signed by D3.  It was also a bilingual document.  It contained 5 clauses.  Clause 1 provided that:

“ I hereby confirm and acknowledge that I am fully aware of my obligations and liabilities under the Security Document.

本人現確認及承認，本人完全知悉本人在抵押文件下的義務及責任。”

The contents of Clauses 2 and 3 should however be noted.  They containedinconsistent optional paragraphs or sentences each marked with an asterisk, with the direction that and those parts which were not applicable should be deleted. Those two paragraphs read as follows:

“	2.	*	I confirm that I have received from DBS Bank (Hong Kong) Limited (“Bank”) a copy of the final draft of the facility letter (or other document) describing the Borrower’s obligations; 本人確認，本人已從星展銀行 (香港) 有限公司 (「貴行」)收到說明借貸人的責任的信貸安排函件 (或其他文件) 定稿的副本；
		*	I have been informed that the Borrower does not consent to DBS Bank (Hong Kong) Limited (‘Bank’) providing me with a copy of each of the following:
			(a) the facility letter (or other document) describing the obligations to be secured or a summary thereof;
			(b) any formal demand to the Borrower for overdue payment; and
			(c) the latest statement of account provided to the Borrower from time to time.
			本人已獲悉借貸人不同意星展銀行 (香港) 有限公司 (「貴行」)向本人提供下列各份文件的副本：
			(a) 說明所保證責任的信貸安排函件 (或其他文件)或其摘要；
			(b) 就逾期款項發給借貸人的任何正式還款要求函件；
			(c) 及不時提供予借貸人的最近期帳戶結單
			Despite this, I have decided to enter into the Security Document in favour of the bank. 儘管如此本人已決定訂立以貴行為受益人的抵押文件。
	3.		I further confirm and acknowledge that though I have been advised by the Bank to seek independent legal advice on the effect of the Security Document, * I have decided not to obtain the benefit of independent legal advice OR * I have obtained legal advice from _______________ (name of solicitors firm providing legal Advice); 本人進一步確認及承認，貴行已建議本人就抵押文件尋求獨立的法律意見，*本人決定毋須尋求獨立的法律意見或 * 本人已從_____________取得獨立的法律意見；”

On the face of the Confirmation and Acknowledgement, none of those inconsistent optional paragraphs or parts have been deleted.  Ma has in his affirmations provided no explanation as to why that was so.   I will come back to this.

28.  Ma did attempt to give some further factual evidence on the execution of the Guarantee. At paragraph 27(ii) and (iii) of his 2^ndaffirmation, he said that:

“ As to the Guarantee and Indemnity dated 4 December 2015 executed by [D3] in favour of the Plaintiff (i.e. the 2^ndGuarantee), I would highlight that:-

(i) …

(ii) On or about 4 December 2015, [D3] attended a meeting with [Shang], a Relationship Manager of the Plaintiff (the ‘Meeting’). The purpose of the Meeting was to present certain documents, including the 1^st Facility Letter and the 2^nd Guarantee, to Wong and to explain the terms and conditions thereof;

(iii) At the Meeting, the Plaintiff did present and [D3] did sign the 2^nd Guarantee (as exhibited in MHK-3 to my 1^st Affirmation), which provides … [various terms of the Guarantee were then cited].”

Ma’s account was however short on factual details.  In particular, whilst he said that “the purpose of the Meeting was to present certain documents … to Wong and to explain the terms and conditions thereof”, he could not say whether and if so what explanations were in fact given.  He further said in generic language that “the Plaintiff did present and [D3] did sign [the Guarantee]”.  He did not say who from the plaintiff presented the Guarantee to D3 for signature, and what were said in the process.

29.  As have been mentioned above, the 3/12/2015 Facility Letter contemplated also the completion of the Mortgages. The Mortgages came about as follows.

30.  According to D3, after Gao had asked him to mortgage the 3 Properties, he received a letter dated 3 February 2016 (“the 3/2/2016 Letter”) from Messrs Woo Kwan Lee & Lo (“WKLL”).  The signed version of the letter was in English.  An unsigned Chinese translation was attached.  Its material parts read as follows:

“ We have Instruction from the Lender to prepare the captioned ‘3 Party Mortgage’ of the Property.

Under the ‘3 Party Mortgage’, you, as one of the Mortgagor, will mortgage your Property to the Lender to secure the borrowings of the Borrower.

To avoid any possibility of the Borrower having undue influence over you in mortgaging your Property, you should INSTRUCT YOUR OWN SOLICITOR to protect your interest and give you independent legal advice.

To enable you to THINK CAREFULLY in advance whether to mortgage your Property as security to secure the borrowings of the Borrower, we enclose herewith the followings for you to READ CAREFULLY:-

WARNING NOTICE (in duplicate) (Appendix C); and

Model-letter of CONFIRMATION BY SURETY (Appendix D)

After you have read and understood the contents of the WARNING NOTICE, please confirm whether you will seek independent legal advice, or wish our firm (please note: our firm also being the Lender’s solicitors) to advise you, by ticking (ü) the appropriate box.”

31.  Appendices C and D are of special relevance and I deal with them separately.

32.  In respect of Appendix C, there is amongst the evidence an English version of the Warning Notice apparently signed by D3 and dated 4 February 2016.  According to Lam:

“ On or about 5 February 2016, I attended a meeting at the said office of WKLL with [D3] in private, i.e. just between [D3] and me (‘the First Meeting’). Before the First Meeting, Wong handed WKLL signed Warning Notice dated 4 February 2016, under which he indicated that he wished WKLL to advise him on the legal and practical implications of the transaction despite every chance offered to him to seek independent legal advice.”

When before the First Meeting, and to whom of WKLL was the signed Warning Notice handed, are however not clear.

33.  Appendix D attached to the 3/2/2016 Letter (in fact marked Appendix D(a)) was an English letter (with Chinese translation, which I will come to later) entitled “Letter by Mortgagor to solicitor where charging property to secure loan to Borrower or his/her business” (“Letter by Mortgagor”).  It was intended to be signed by the mortgage during the meeting due to take place to confirm the contents of the meeting.  Paragraph (4) read:

“ The Lender had given to the Solicitors’ Firm the Information set out in Part 6 of the Schedule. The Solicitors’ Firm had not independently verified the Information. If I/we had any doubts or further enquiries about the Information, I/we should approach the Lender directly or through the Solicitors’ Firm.”

34.  The Schedule to the Letter by Mortgagor contained 7 parts which set out respectively the particulars of “the Mortgagor”, “the Property”, “the Lender”, “the Borrower”, “the Owner(s)”, “the Information” and “the way of the charge”. In the English version of that Letter, they were all filled out.  In particular, under Part 6, it was stated that:

“ Part 6 — ‘the information’ :

(a) The purpose of the new facility is for working capital of the Borrower.

(b) The current amount of indebtedness of [D1] is nil; whilst the current amount of indebtedness of [D2] is HK$184,426,544.87 as at 18 January 2016

(c) There is no current overdraft facility of the Borrower

(d) The amount and terms of the new facility are revealed in the facility letters enclosed hereto.

(e) There is no written application by the Borrower for a facility.

(f) The market value of the Property is (1) HKD22,300,000, (2) HKD21,600,000 and (3) HK$16,100,000.”

35.  As I have said, also enclosed with the 3/2/2016 letter was a Chinese translation of the Letter by Mortgagor.  The contents of the Chinese version of the Letter by Mortgagor were however different from the English version.  In particular, the 7 parts in the Schedule were all left blanked.  Part 6 of the Schedule contained only 4 paragraphs (as opposed to 6 in the English version), were all left blanked, and read as follows:

“ 第六部份— ‘資料’ :

(a) 貸款人向借款人提供了總值[ 港元]的貸款 / 融通。這表示在簽署抵押文件後，借款人可以從貸款人最多借入上述金額。

(b) 貸款 / 融通的目的是 [ ] 。

(c) 於[ ] ，借款人欠貸款人[ 港元]

[截至會面日期為止，借款人未有欠貸款人任何款項] 。

(d) 有關物業於[      ]的市值為[     港元] 。”

I note specifically that the sentence in square brackets at paragraph (c) of Part 6 of the Schedule of the Chinese version (namely “[截至會面日期為止，借款人未有欠貸款人任何款項]”) did not appear in the English version of the Letter by Mortgagor.

36.  Towards the end of the Chinese version of the Letter by Mortgagor (at page 4), one finds a number of acknowledgements intended to be made by the mortgagor.  The last one read as follows:

“ 確認本函的中文譯本已於較早前寄予本人/吾等作為參考而英文版本乃用作所有用途。”

37.  D3’s case is that he has been misled by the Chinese version of the Letter by Mortgagor.  At paragraph 68 of his 1^st affirmation, he said that:

“ As stated above, I did not and do not fully appreciate any document in English, I just read the Chinese Letter enclosed in the letter dated 3 February 2016 sent by Plaintiff’s Solicitors. I noted that in the Chinese Letter, the Plaintiff has not yet lent any money to the companies ([D1] and/or [D2]) as the related particulars were not stated in the Chinese Letter.”

38.  He agreed that he attended WKLL on 5 February 2016 and had a meeting with Lam.  He said in that regard, at paragraphs 69 to 71 of his 1^st affirmation, that:

“ 69. … During the meeting, [Lam] gave a document titled ‘Appendix D(a) (all monies mortgage) letter by Mortgagor to solicitor where charging property to secure loan to Borrower for his/her Business’ (the ‘English Letter’) to me …. As I couldnot understand the English Letter, I relied on the Chinese Letter … of its content. At the time of the Meeting, I honestly believed that the English Letter is only a translated version of Chinese Letter.

70. During the Meeting, Ms Lam briefly explained the English Letter in Cantonese within a very short time. The Plaintiff, by arranging the Chinese Letter mailed to me earlier than the Meeting, was clearly aware the fact that I was close to illiterate in English.

71.   I recall that when Ms Lam briefly explained the English Letter, she has mentioned about there were some debts of [D1] and/or [D2].  I just wondered such information.  I then suspended the meeting and called Mr. Gao at once and Mr. Gao further called Mr. Yang forthwith.  Mr. Gao subsequently informed me that Mr. Yang said that there was no debt owed to the Plaintiff that time, but just the credit lines of these companies granted by the Plaintiff.  I then asked Ms Lam whether the amount stated in the English Letter was only referred to credit lines granted, she just said that ‘唔清楚’ (Do not know clearly) and ‘貸款喺俾公司用’ (the borrowing would be used for those companies).”

He further said at paragraphs 76 and 83 of his 1^st Affirmation that:

“ 76. When I executed the Mortgages, I did not even know the existence of any facility letter issued by the Plaintiff to [D1] and [D2], and hence, it has never been my intention to secure the existing indebtedness by mortgaging the Three Properties to the Plaintiff. In the Chinese Letter, there is nothing to indicate that the Mortgages I was about to enter into were used to secure any subsisting indebtedness of [D2]. Relying on the Chinese Letter and Ms. Lam’s explanations, I was under an impression that I execute the Mortgages documents to secure new borrowing or facility from the Plaintiff. As the information in the Schedule was given by the Plaintiff and explained to me by Ms. Lam, as stated above, I strongly believe that Ms. Lam did not know the Mortgages would be for securing, inter alia, new facility for the purpose of repaying existing indebtedness of [D2] herself. Had I know the purpose of the Mortgages was to secure existing debts of [D2], I would not have been willing to enter into the Mortgages at all as there is absolutely no commercial purpose for me to do so which is also against Mr. Gao’s instruction.”

“ 83. As I am close to illiterate in English, I had relied on the Chinese Letter to understand the terms of the intended mortgages and my liabilities thereof. Therefore, the Plaintiff, knowing the terms of the Mortgages and my liability under the Mortgages contained in the English Letter, had fraudulently misrepresented, in the alternative negligently misrepresented and in the further alternative innocently misrepresented to me the terms of the Mortgages and my liabilities thereof under the Chinese Letter through their solicitors … in particular the state of indebtedness between the Plaintiff and [D2].”

39.  Lam gave a different version.  She did not dispute that the English and Chinese versions of the Letter by Mortgagor were different.  In her affirmation, she said that during the meeting she had with D3 on 5 February 2016 (which she called “the First Meeting”, which term I adopt), she did explain to D3 the Information with reference to the English version.  She said at paragraph 15 of her affirmation that:

“ I confirm that at the First Meeting, I had adopted the established practice mentioned in paragraph 13 above. In the premises, I verily believe that [D3] was fully aware of and understood the nature and contents of the said documents before he signed the same, and the fact that they were legally binding documents. Further, in accordance with my established practice (see paragraph 13 above), before I started explaining the legal effect and contents of the said documents, I did say to Wong that he should seek independent legal advice as to the terms and conditions of the documents. When I explained the English Letter by Mortgagor to [D3] in Punti, I pointed out to [D3] thatas instructed by the Plaintiff, the amount of indebtedness of the [D2] to the Plaintiff was HK$184,426,544.87 as at 18 January 2016. It was made known to [D3] that the security he was providing over the Properties could be applied by the Plaintiff for all existing and future debts of [D1 and D2], including the said debt for the amount of HK$184,426,544.87. After the First Meeting, hard copy of the Facility Letters was provided to [D3] for reference.”

40.  In specific response to D3’s account of what happened during the First Meeting, she said at paragraph 16:

“ In addition, in relation to paragraphs 69 to 71 of [D3’s 1^st affirmation], I wish to make the following comments:

(a) The first Meeting lasted around 45 minutes to 1 hour and I went through every point in the Letter by Mortgagor (or the ‘English Letter’ referred to in [D3’s 1^st affirmation] in Punti.

(b) Page 4 of the Chinese translation of the Letter by Mortgagor clearly stages that … (d) ‘確認本函的中文譯本已於較早前寄予本人/吾等作為參考而英文版本乃用作所有用途’. Therefore the Chinese translation was simply for reference only and I do not believe that [D3] would have thought that the Chinese translation was a complete word-by-word translation. In any event, as mentioned above, I did explain the terms and documents to him in Punti, so it is irrelevant what was or was not contained in the Chinese translation …

(c) Likewise, although WKLL or I have never been told by [D3] about his English proficiency, I have truly, distinctly, and audibly interpreted the contents of all documents referred to in paragraph 14 to [D3] in Punti. Therefore, even if [D3] did not know any English at all, he would have understood the contents thereof.

(d) I do not recall [D3] asking any question or suspending the First Meeting or calling anyone.  All I can remember is that he said something like if something bad happens to the companies ([D1] and [D2]) the Properties could be affected, which goes to confirm his understanding of the obligations that he was assuming in executing these mortgage documents.”

41.  According to Lam, at the First Meeting, D3 did sign certain documents.  They included the English version of the Letter by Mortgagor, one single mortgage deed over the 3 Properties, and a number of related board resolutions.  I note that they were in English. 

42.  Lam further said that after the First Meeting, WKLL received instructions from the plaintiff to split up the signed mortgage deed into three separate ones, one covering each of the 3 Properties.  Fresh documents were then prepared for that purpose, which included similar Warning Notices and Letters by Mortgagor.  The Mortgages were ultimately signed by D3 on 22 February 2016 during another meeting Lam had with D3 (which she calls “the Second Meeting”). She said in this regard, at paragraph 19 of her affirmation, that:

“ During the Second Meeting, the 3 Mortgages, 3 Letters by Mortgagor and revised written resolutions of [D1 and D2] were explained briefly since their contents are the same as the Mortgage, Letter by Mortgagor and written resolution [D3] signed on 5 February 2016 save and except the property described and/or number of mortgages referred thereto. [D3] executed and/or signed all of them without raising any questions as to the contents thereof. The 3 Mortgages all dated 11 March 2016 over Property 1, Property 2 and Property were subsequently registered …”

43.  On the 24 March 2016, the plaintiff issued a facility letter in favour of D2 (“the 24/3/2016 Facility Letter”). Facilities in the aggregate amount of HK$120 million were granted to D2.  Those facilities included an installment loan in the sum of US$17,930,000 (“the Installment Loan”). It was in the exact amount as the total indebtedness owed by D2 to the plaintiff upon early termination of the Forex Agreements.  Indeed, at page 1of the 24/3/2016 Facility Letter, it was expressly stated that the purpose of the Installment Loan was:

“ Solely to settle the unwinding cost / account outstanding under the [Forex Agreements] of [D2] with [the plaintiff] (‘Outstanding Sum’). The actual amount of the advance shall be determined by [the plaintiff] at its absolute discretion up to the Outstanding Sum on the date of advance.”

44.  D1 and D2 have been unable to repay certain debts owed to the plaintiff. By letters to all the defendants dated 9 December 2016, the plaintiff demanded immediate payment of the outstanding amounts then jointly and severally due from them within 7 days.  Repayments were not forthcoming.  On 16 August 2017, the Originating Summons was issued.  According to Ma’s 1^st affirmation, as at 11 September 2017, D1, D2 and D3 were jointly and severally indebted to the plaintiff for the total sum of HK$22,249,742.46 and US$3,091,619.45; and that D2 and D3 were jointly and severally further indebted to the plaintiff for the total sum of HK$5.056.58 and US$18,916,941.81.

Submissions on behalf of the plaintiff

45.  Mr Lok on behalf of the plaintiff submits that this is a straightforward case appropriate for summary disposal.  He submits that the starting point is that the documents has all been signed.  D3 does not dispute the authenticity of his signatures.  He is bound by his signatures.  Relying on the documents alone, and in particular the bilingual documents, Mr Lok submits that D3 has all along been aware of the nature of the documents he signed, and the purported defences advanced on behalf of D3 must fail in limine.

Submissions on behalf of D3

46.  Mr Ho on behalf of D3 submits that on the facts, the Guaranteeand Mortgages are liable to be vitiated or set aside, and there are definitely triable issues in this case.  He submits that on the unsatisfactory evidence before the Court, the plaintiff has been unable to show that the present case is suitable for summary disposal.  He submits that the plaintiff has in any event been unable to “give particulars of every person who to the best of the plaintiff’s knowledge is in possession of the mortgaged property”, as is required by Order 88, rule 5(4).  He submits that in the light of the substantial factual disputes, it would be abusive if the Court were to grant relief summary. 

Law relevant to Order 88—whether triable issues

47.  The law is this regard is not in dispute.  An Originating Summons is generally an inappropriate procedure where there is substantial dispute as to facts.  In an action litigated by way of Order 88 procedure, judgment can summarily be given, but only if there is no trial triable issue on the evidence—see De Lasala-Debring v De Lasala [2014] 2 HKLRD 674, per Anthony Chan J at paragraph 5, Bank of China (Hong Kong) Ltd v China Hong Kong Textile Co Ltd [2011] 4 HKLRD 457, per Lam J (as he then was) at paragraph 5, and Lei Shing Hong Credit Ltd v Kingsfine International Ltd & Another HCMP 1169/2016 (21 April 2017), per Deputy Judge Paul Lam SC at paragraph 5.

48.  As to the approach to be adopted when considering whether the evidence discloses any triable issue, I agree with the observations made by Deputy Judge A To (as he then was) in Ip Kam Wah & Another v Fair City Group Ltd [2005] 4 HKLRD 168, at paragraph 8, that:

“ I accept that, unlike the plaintiff in an O.14 application, the plaintiff in an originating summons procedure bears the burden of proof. When faced with conflicting affidavits from both parties, the court will be failing in its duty if it should take the assertions in the affidavits on their face value in isolation and jump to the conclusion that there is a triable issue without first considering whether the assertions in the affidavits are believable. I bear in mind the test laid down by Bokhary JA (as he then was) in Re Safe Rich Industries Ltd (unrep., Civ App No 81 of 1994,[1994] HKLY 183) that whether the assertions are believable is a question to be answered not by taking the assertions in isolation but by taking them in the context of so much of the background as was either undisputed or beyond reasonable dispute. In an originating summons procedure, it is only when the court is satisfied after having undertaken that exercise that factual disputes could not be resolved on affidavit evidence that oral evidence or trial should be considered.”

Consideration of the evidence

49.  An important issue in the present case is D3’s degree of literacy in English.  D3 produced his Hong Kong Certificate of Education Examination Results Notice which showed that he failed in English.  Mr Lok pointed out that D3 in fact got grade “E” for “Reading Comprehension and Usage”.  But D3 got “F” in respect of all other aspectsof the subject (namely “Writing”, “Integrated Listening, Reading and Writing” and “Oral English”).  D3’s claim that he is close to illiterate in English cannot be dismissed off hand as being unbelievable.

50.  Given the possibility that D3 may in fact be “close to illiterate in English” as he now claims, what he has been told about the Guarantee and Mortgages will have to be considered with particular care:

(a)   As I have observed above, the plaintiff has not adduced any evidence from Andrew Tam, Yu, or Shang;

(b)   Ma has no contemporaneous knowledge of the events which led to the issue of the Originating Summons.  His evidence was based solely on documents and records, and is short on details;

(c)   In so far as the Guarantee is concerned, at this stage, it is D3’s words against nobody else;

(d)   In so far as the Mortgages are concerned, the distinct impression I got after reading Lam’s affirmation is that she has no independent recollection of what occurred during the First and Second Meetings.  She has to rely upon her “established practice” (see paragraph 15 of her affirmation where she said that “I confirm that at the First Meeting, I had adopted the established practice mentioned in paragraph 13 above.  In the premises, I verily believe that [D3] was fully aware of and understood the nature and contents of the said documents before he signed the same …”).  But with no disrespect to her, she was admitted as a solicitor in September 2015, and might not have had by early 2016 a lot of time to establish any practice which she sought to rely on;

(e)   Also importantly, Lam has not produced any attendance notes relevant to her dealing with D3.

51.  The documents at this stage are also problematic:

(a)   D3 might not be able to understand documents that were only in English;

(b)   the “Notice (to Individual third party security provider)” was a bilingual document.  However, it was, though addressed to D3, not signed by him;

(c)   the Confirmation and Acknowledgement was another bilingual document which Mr Lok relies heavily upon. However, as I have observed above, none of those inconsistent optional paragraphs or parts on the face of the document have been deleted. That, in my view, supports the distinct probability that nobody had contemporaneously gone through that document with D3;

(d)   I have described in some details the problems with the Chinese translation of the Letter by Mortgagor.  Its contents could be misleading, and D3’s evidence that he has been misled thereby is not unbelievable, and cannot be dismissed off hand.

52.  The background which led to the execution of the Guarantee and Mortgages also supports D3’s case that he might have been misled:

(a)   There was no evidence suggesting that D3 had been involved in the business or operation of D1 and D2 prior to his execution of the Guarantee.  In particular, there was no evidence suggesting that he was in any way connected to the execution of the Forex Agreements or their early termination;

(b)   The 3/12/2015 Facility Letter expressly contemplated the execution by D3 of the Guarantee and Mortgages.  Yet, there is no direct evidence from the plaintiff as to how it was negotiated and agreed upon, or what D3’s role was during that process;

(c)   D3 signed the Guarantee one day after the 3/12/2015 Facility Letter;

(d)   It should be reiterated that when the 3/12/2015 Facility Letter was signed, D3 had not been appointed a director of D1.  Whilst D3 was according to the Annual Return of D1 transferred 50% of its shares on 12 November 2015, that Annual Return was not lodged with the Companies Registry until 22 September 2016;

(e)   By 15 January 2016, D2 had become indebted to the plaintiff in the sum of US$17,930,000 as a result of the early termination of the Forex Agreements. At that time, the indebtedness was unsecured.  There is no evidence as to whether this vital fact and change of circumstances had been explained to D3 after the execution of the Mortgages was first contemplated (on 3 December 2015 latest). On the face of the document, D3 just, by signing the Mortgages, walked into this huge liability.

53.  I emphasize that I am not suggesting that the background facts highlighted above are necessarily suggestive of fraud or otherwise any vitiating factors.  My view is that D3’s case has to be considered against such background.  My further view is that D3’s case, when considered and set against such background, is not unbelievable, and ought not to be dismissed offhand.

54.  To complete the picture, I record that parties have made a lot of submissions before me (both law and facts) on the possibility of D3 having been misled or unduly influenced by third parties, and whether the plaintiff had been put on enquiry as a result.  On the evidence, I have found for the reasons set out above that D3’s case that he has been misled by parties employed or engaged by the plaintiff is not unbelievable.  In the circumstances, I do not see the need to consider the possibility of third party impropriety. 

Disposal

55.  For the reasons set out above, I refuse to deal with the matter summarily.  I am of the view that the facts of the case warrant further consideration with the benefit of pleadings, discovery and cross-examination. I order that the case should proceed as if started by Writ.  For this purpose, I give the following directions:

(a)   the plaintiff do file and serve its statement of claim within 28 days from the date of Order;

(b)   D3 do file and serve its defence and counterclaim (if any) within 28 days thereafter;

(c)   the plaintiff do file and serve its reply and defence to counterclaim (if any) within 28 days thereafter;

(d)   the parties do comply with the provisions of Order 25, rule 1 of the Rules of the High Court within 28 days of the close of pleadings;

(e)   there be liberty to apply.

56.  I also make an order nisi that D3 should have the costs of and occasioned by the hearing.