ON SKY ENTERPRISE (HK) LTD v. LANCO INTERNATIONAL HOLDINGS LTD AND OTHERS

HCA 529/2010
& HCMP 921/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 529 OF 2010

MISCELLANEOUS PROCEEDINGS NO 921 OF 2010

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J U D G M E N T

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Introduction

1.  In the Main Action, the Plaintiff claims against the Defendants for repayment of the principal sums and interest under 2 loan agreements dated 11 July 2008 and 22 January 2009 (“1^st Loan Agreement, 2^nd Loan Agreement”collectively “Loan Agreements”). The 2 Loan Agreements were entered into between the Plaintiff as “lender”, the 1^st Defendant (“Lanco”) as “borrower” and the 2^nd to 5^th Defendants (“Chan”, “Dr Shiu”, “Joe Shiu” and “Ng”) as “Securing Parties”. The principal sums under the 1^st and 2^nd Loan Agreements were respectively US4.8 million and CAD 2 million (“1^st Loan, 2^nd Loan”collectively“Loans”).

2.  In the Indemnity Action, Dr Shiu and his son Joe Shiu (“Shius”), together with the 6^th and 7^th Defendants (collectively “Shiu Defendants”) claim for an indemnity against Lanco as the principal debtor in the event the Plaintiff succeeds in its claims against them. Further, Dr Shiu claims for damages against Chan in respect of the 2^nd Misrepresentation as defined below as well as for contribution.

3.  Chan, the Shius and Ng were at the material time Lanco’s shareholders and directors. Each of them had signed personal guarantees dated 11 July 2008 and 22 January 2009 (“1^st Guarantee, 2^nd Guarantee” collectively“Guarantees”) as security for the Loans.

4.  As further security for the Loans, legal charges dated 15 July 2008 and 22 January 2009 (“1^st Legal Charge, 2^nd Legal Charge” collectively “Legal Charges”) were executed by Dr Shiu and the 6^th and 7^th Defendants in favour of the Plaintiff. The properties in question are:

Under 1^st Legal Charge

(1) 2^nd Floor, No.2 Cannon Street (formerly known as No.519 Jaffe Road), Hong Kong registered in the name of the 6^th Defendant; (“1^st Property”)

(2) 3^rd Floor, No.2 Cannon Street (formerly known as No.519 Jaffe Road), Hong Kong registered in the name of the 7^th Defendant; (“2^nd Property”)

(3) Flat, Flat Roof and Lift Lobby on 6^th Floor, Well‑Found Building, No.488 Jaffe Road, Hong Kong registered in the name of Dr Shiu; (“3^rd Property”)

(collectively “Wanchai Properties”)

Under 2^nd Legal Charge

(4) 2^nd Floor, No.52 MacDonnell Road, Hong Kong (“MacDonnell Road Property”) registered in the name of Dr Shiu.

5.  By a Supplemental Agreement dated 17 March 2009 (“Supplemental Agreement”), Lanco, Chan, the Shius and Ng agreed that the Plaintiff was entitled to elect repayment under the 1^st Loan Agreement in either US or Canadian dollars, at the agreed exchange rate of US$1.00: CAD1.26. Subsequently by letter dated 9 December 2010, the Plaintiff through its solicitors elected Canadian dollars as the currency for repayment. The principal sum of the 1^st Loan thus became  CAD6.048 million.

6.  On 16 April 2010, the Plaintiff issued the Writ of Summons in HCA529 of 2010 claiming repayment of the Loans together with interest against the 1^st to 5^th Defendants. On 14 May 2010, the Plaintiff commenced a mortgagee action in HCMP 921 of 2010 against Dr Shiu and the 6^th and 7^th Defendants claiming repayment of sums due under the Legal Charges together with delivery of vacant possession of the properties in question.

7.  On 16 and 19 August 2013 respectively, the Plaintiff obtained judgment in default of Defence against Lanco and Ng.

8.  While Chan had filed a Defence in the Main Action to the Plaintiff’s claim and in the Indemnity Action[1], as well as a witness statement, he did not appear at the trial to defend the claims. Lanco had not filed a Defence in the Indemnity Action.

The Parties

9.  The Plaintiff’s shareholder and director was at all material times and is Mr Alan Chu Pang Chi (“Alan Chu”), a permanent resident of Canada. His nephew Mr George Chu Fung Chee (“George Chu”) was and still is a practising barrister in Hong Kong. Around 2005 to 2007, George Chu came to know Dr Shiu while acting for him in relation to some legal disputes concerning Dr Shiu’s investment properties.

10.  At the material time, Lanco[2] owned 70% equity interest in a Sino-foreign joint venture enterprise (“JV”) which ran an aluminum plant in Desheng, Guangxi, PRC (“Project”).

11.  Chan held 70% of Lanco’s shareholding.  He was at the material time in the business of estate agency and property management through a company called Land Partners Surveyors Limited (“Land Partners”). He and George Chu were alumni of the University of Waterloo, Canada and came to know each other in Hong Kong through the Waterloo University Alumni Association.

12.  Dr Shiu is over 80 years old. He obtained his original medical qualifications in the PRC. He came to Hong Kong in about 1957. Two years later, he moved to the UK to further his medical studies. He had lived in London, Aberdeen and later Dublin where he obtained his medical qualifications.  He practiced as a doctor for about 4 to 5 years in London before returning to Hong Kong around 1976. From 1976 to 1984, he was a general medical practitioner. Since his retirement in 1984, he spent half of his time in Hong Kong and half in Sydney where he maintained a practice as a locum doctor providing cover for other doctors while they were absent.

13.  Dr Shiu came to know Chan in about 1996. It was through the introduction of Chan that he acquired the 2^nd Property.

14.  In 2006, Chan told Dr Shiu about an opportunity to invest in the Project. Dr Shiu was interested and purchased 25% shareholding in Lanco from its then shareholder Mr Chong Yao Tin. After the purchase, he and Joe Shiu each held 12.5% shareholding of Lanco. Between 2006 and 2009, Dr Shiu had also financed the operation of Lanco by way of shareholder’s loans. Dr Shiu said he had lent over HK$16 million to Lanco up to May 2009.

15.  Joe Shiu was born in Australia in 1976 and is Dr Shiu’s youngest son. He received, but apparently did not complete, his secondary education in Hong Kong and Sydney. He is said to be suffering from dyslexia. In 2006, he returned to live Hong Kong.

16.  Ng held the remaining shareholding of Lanco.

17.  The Shius are directors and equal shareholders of the 6^th and 7^th Defendants. The 6^th and 7^th Defendants are involved in these proceedings by reason of their being the registered owners of two of the Wanchai Properties and having executed the 1^st Legal Charge in favour of the Plaintiff.

Plaintiff’s case against Chan and Shiu Defendants

18.  Since the Plaintiff has already obtained judgment against Lanco and Ng, the trial of the Main Action involved only Chan and the Shiu Defendants. As far as Chan is concerned, as he did not turn up at trial, the Plaintiff’s task is to prove its case.

19.  The Plaintiff’s claims against Chan and the Shiu Defendants are straightforward. They are based on the express terms of the Loan Agreements, Guarantees and Legal Charges (collectively “Loan Documents”) as well as the Supplemental Agreement. Importantly, when the Loan Documents were being drafted and eventually executed, the Plaintiff and the Shiu Defendants were legally represented. The Plaintiff was represented by Ms Joan Leung (“Leung”) of Arculli Fong & Ng. The Shiu Defendants were represented by Mr Sam Ho (“Ho”) of Messrs T C Foo & Co.

20.  The terms of the Loan Documents are not in dispute as such and can be summarized very briefly as follows.

21.  Under the 1^st Loan Agreement, it was agreed that:

(a) The Plaintiff would advance the sum of US$4.8 million to Lanco for a term of 5 years [Clause 1.3].

(b) Monthly interest was payable in arrears at the rate of 16.5% p.a., ie US$66,000 per month, throughout the term of the 1^st Loan [Clause 5.1].

(c) Upon failure to pay any sum due under the agreement or upon any event of default (as defined), default interest would be payable on all overdue sums at the rate of 24% p.a. [Clause 5.4].

(d) Lanco and the Securing Parties undertook to reimburse the Plaintiff on demand all costs, charges, expenses, including legal and other fees, on a full indemnity basis [Clause 8.4(c)].

(e) The agreement would take effect as an entire agreement and superseded all previous proposals, representations, warranties or undertakings relating thereto whether oral, written or otherwise. It was also agreed that neither party “has relied on any proposals, representations, warranties, agreements or undertakings” [Clause 22].

22.  Under the 1^st Guarantee, Chan, Shius and Ng expressly agreed as principal obligors to guarantee the prompt performance by Lanco of all its obligations under the 1^st Loan Agreement.

23.  By the 1^st Legal Charge between Dr Shiu, 6^th and 7^th Defendants as mortgagors, Lanco as borrower and the Plaintiff as lender, the Wanchai Properties were charged as security for the due payment of all monies then or thereafter due or payable by Lanco to the Plaintiff.

24.  Following the receipt of a drawdown notice dated 15 July 2008, the Plaintiff advanced the 1^st Loan of US$4.8 million to Lanco.  The 1^st Loan was therefore repayable within 5 years from 15 July 2008.

25.  The documentation in relation to the 2^nd Loan of CAD 2 million was for all practical purposes the same as that for the 1^st Loan save and except that under the 2^nd Loan Agreement:

(a) the term of the 2^nd Loan was for 2 years [Clause 1.3]; and

(b) monthly interest was payable in arrears at the rate of 18% p.a., ie CAD30,000 per month, throughout the term [Clause 5.1].

26.  The 2^nd Loan Agreement similarly provided for the payment of default interest at 24% p.a. upon failure to pay any sum due under the agreement or upon any event of default [Clause 5.4].

27.  The 2^nd Loan was drawn down or or about 22 January 2009 pursuant to a drawdown notice of even date. The 2^nd Loan was therefore repayable within 2 years from 22 January 2009.

28.  It is not in dispute that since 15 April 2009, Lanco has failed to make payment of interest due under the Loan Agreements and hence an event of default was deemed to have occurred, entitling the Plaintiff to demand immediate repayment of the Loans.  It is also not in dispute that all other Defendants have also defaulted subsequent to Lanco’s default.

Shiu Defendants’ Defence in the Main Acton

29.  In a nutshell, the Shiu Defendants say that the Loan Documents were vitiated by reason of the undue influence of Chan and the misrepresentations of Ho and Chan.

30.  Mr Mak, for the Shiu Defendants, summarized his clients’ defence in his closing submissions as follows.

31.  First, George Chu was the Plaintiff’s agent in the two loan transactions so that his acts and/or knowledge could be imputed to it. This was evidenced by inter alia the Plaintiff’s written resolutions which authorized George Chu to be its agent in relation to the two loan transactions. This was also understood to be so by the parties’ solicitors viz Leung and Ho.

32.  Second, Chan exercised undue influence over the Shius in relation to the 2 loan transactions.  Chan was Dr Shiu’s estate agent and good friend in whom Dr Shiu had reposed trust and confidence.  Chan was also Joe Shiu’s role model whom he worked for and in whom he also reposed trust and confidence. The 2 loan transactions were at a manifest disadvantage to the Shiu Defendants. George Chu had actual and/or constructive notice of the exercise of undue influence by Chan. The Plaintiff, with the imputed knowledge from George Chu in relation to the undue influence, failed to take reasonable steps to satisfy itself that the transactions were not procured by undue influence. 

33.  Third, at a meeting held on 11 July 2008 at the office of Messrs T C Foo & Co, Ho misrepresented to the Shius that upon signing the 1^st Loan Agreement and the 1^st Guarantee, “the Plaintiff would only take legal proceedings against the richest person amongst them should Lanco fall into arrears” (“1^st Misrepresentation”). Neither Dr Shiu nor Joe Shiu was the richest person.  The Shius were induced by that misrepresentation to execute the 1^st Loan Agreement and the 1^st Guarantee.  When Ho made the 1^st Misrepresentation, George Chu was present. George Chu’s knowledge was imputed to the Plaintiff.

34.  At a meeting held on 22 January 2009 at the office of Messrs T C Foo & Co, Ho repeated the 1^st Misrepresentation to Dr Shiu when he asked Dr Shiu to execute inter alia the 2^nd Loan Agreement and the 2^nd Guarantee. At the same meeting, Chan misrepresented to Dr Shiu that, notwithstanding the 2^nd Legal Charge, he would still retain a life interest in the MacDonnell Road Property in the event Lanco were to fall into arrears and the Plaintiff took enforcement action (“2^nd Misrepresentation”). Dr Shiu was induced by the 2^nd Misrepresentation to execute the 2^nd Loan Agreement, 2^nd Guarantee and 2^nd Legal Charge over the MacDonnell Road Property.

35.  By reason of the aforesaid undue influence and misrepresentations, the Shiu Defendants are entitled to rescind all the Loan Documents and the Supplemental Agreement and they counterclaim for various declarations to that effect.

Core Issues between Plaintiff and Shiu Defendants

36.  In this court’s view, the principal issues which fall for determination are these.

(1) Did Chan exercise undue influence over the Shius in procuring their execution of the Loan Agreements (as Securing Parties), the Guarantees, the Legal Charges and the Supplemental Agreement [3] ? (“1^st Issue”)

(2) If yes, whether the Plaintiff was put on actual notice of Chan’s exercise of undue influence over the Shius via George Chu alternatively whether the Plaintiff had constructive notice of it [4] ? (“2^nd Issue”)

(3) Did Ho make the 1^st Misrepresentation to the Shius at the meeting on 11 July 2008 [5] and repeated the same to Dr Shiu at the meeting on 22 January 2009 [6]? (“3^rd Issue”)

(4) Were the Shius induced to execute the 1^st Guarantees and the 1^st Loan Agreement (as Securing Parties) by the 1^st Misrepresentation[7] ? (“4^th Issue”)

(5) Did the Plaintiff have actual notice of the 1^st Misrepresentation via George Chu [8] ? (“5^th Issue”)

(6) Did Chan make the 2^nd Misrepresentation to Dr Shiu at the meeting on 22 January 2009 [9] ? (“6^th Issue”)

(7) Was Dr Shiu induced to execute the 2^nd Legal Charge, 2^nd Guarantee and the 2^nd Loan Agreement (as one of the Securing Parties) by the 2^nd Misrepresentation [10] ? (“7^th Issue”)

(8) Did the Plaintiff have actual notice of the 2^nd Misrepresentation via George Chu [11] ? (“8^th Issue”)

(9) Even if Ho and Chan had made the 1^st and 2^nd Misrepresentations, whether the Plaintiff can rely on the entire agreement clauses in the Loan Agreements as precluding the remedy of recission by the Shiu Defendants [12] ? (“9^th Issue”)

Undue Influence

37.  The leading case for the present purpose is Li Sau Ying v Bank of China (2004) 7 HKCFAR 579, a Court of Final Appeal decision which is binding on this court.

38.  The factual context can be gleaned from the judgment of Lord Scott of Foscote NPJ at [2]:

“In 1996 the appellant, Catherine Li Sau Ying, granted a mortgage over a flat she owned (“the Property”) to ...“the Bank”. The 1996 mortgage was granted by the appellant as security for the indebtedness to the Bank of Sunny Tech Ltd (“Sunny”), a company in which the appellant had no interest.  Sunny was substantially owned and controlled by a Mr Ip... The appellant had granted the mortgage at the suggestion of a friend of hers, Mr Li Hung Hon, the second defendant, who appears to have been in some respects a business associate or, perhaps, partner of Mr Ip...”

39.  Madam Li sought to set aside the 1996 mortgage on the ground of undue influence by Mr Li in whom she reposed trust and confidence. In upholding the validity of the 1996 mortgage, the Court of Final Appeal took the opportunity to clarify the principles of law expounded in Barclays Bank Plc v O’Brien and Anor [1994] 1 AC 180 and Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773.

40.  In Li Sau Ying, Lord Scott observed at [28] – [30]:

“28. This is not a case in which the relationship between the appellant and Mr Li was one of the well established categories of relationship where the relationship as such would lead the court to presume that undue influence had been exerted unless evidence was adduced proving the contrary...It was not, using Slade LJ’s categorisation, a Class 2A case. Both the Deputy Judge and Le Pichon JA asked themselves whether the case was a Class 2B case, i.e. a case in which on its particular facts a relationship not falling within the Class 2A category had been shown to have become such as to justify the court in applying the same presumption ...

29. Lord Browne-Wilkinson’s approach in Barclays Bank Plc v. O’Brien was broadly endorsed and built upon by the House of Lords in Royal Bank of Scotland plc v Etridge (No. 2) [2002] 2 AC 773 but the use of the expression ‘presumed undue influence’ and, in particular, its use in connection with Class 2B cases was deprecated...  Lord Hobhouse of Woodborough said, at para. 98 that the Class 2A and Class 2B categorisation derived from the Aboody case had been ‘the source of much of the confusion which has ensued’ and, at para. 105, that ‘the language of presumption is likely to confuse rather than assist’. He said that:

‘... If at the end of the trial the wife succeeds on the issue of undue influence, it will be because that is the right conclusion of fact on the state of the evidence at the end of the trial, not because of some artificial legal presumption that there must have been undue influence.’ (para. 106)

Lord Hobhouse concluded that:

‘... the so-called Class 2(B) presumption should not be adopted. It is not a useful forensic tool.’ (para. 107)

And I expressed similar views at para. 161:

‘For my part, I doubt the utility of the Class 2B classification ... The presumption in Class 2B cases, ... is doing no more than recognising that evidence of the relationship between the dominant and subservient parties, coupled with whatever other evidence is for the time being available, may be sufficient to justify a finding of undue influence on the balance of probabilities ...’

30.   The strong message from Royal Bank of Scotland plc v Etridge 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.” (emphasis added)

41.  In Bank of China v Wong King Sing[2002] 1 HKLRD 358 at [34], Recorder Ma, SC (as he then was)  said:

“34. I should preface the discussion of this defence with the observation that, as with all aspects of the law, one has to apply a large degree of common sense to the matter... it has to be borne in mind that the defence of undue influence is ultimately a simple concept. It has all to do with informed consent. Once a court forms the view that consent was freely given with full knowledge of the consequences of entering into the relevant transaction, that is the end of the matter, however improvident the transaction may objectively appear. The rationale for the defence of undue influence is to prevent the victimization of the complainant. It is there to protect people from being forced, tricked or misled in any way by others into entering into a disadvantageous transaction ...” (emphasis added)

42.  The real issue is thus whether or not the evidence as a whole justifies a conclusion that the Shius’ execution of the Loan Documents had been procured by Chan’s undue influence or, looking at it from another angle, whether the Shius consented to the execution of the Loan Documents with full knowledge of the consequences in so doing.

43.  The Shius claim they had a lot of trust in Chan and were under his undue influence when they signed the Loan Documents. As illustration of the Shius’ trust in Chan, Mr Mak made the following points in his closing submissions.

44.  First, Dr Shiu came to know John Chan in or around 1996. Since then, Dr Shiu entrusted Chan with the management of his properties in Hong Kong. Chan helped Dr Shiu acquire the three Wanchai Properties. Second, when Joe Shiu came back to Hong Kong from Australia in 2006, Dr Shiu was worried that he would not be able to make a living by himself.  He therefore asked Chan to take Joe as a trainee at Land Partners which Chan did. Third, in November 2006, when Chan needed to borrow money for Land Partners (in which Dr Shiu had no shareholding), Dr Shiu was willing to mortgage the Wanchai Properties to the Public Bank as security. Lastly, Dr Shiu relied on Chan’s advice and decided to invest in Lanco for the purpose of acquiring the Project. After acquiring 25% in Lanco, he even lent over HK$16 million to Lanco between 2006 and 2009 as shareholder’s loan.

45.  On the basis of the above, Mr Mak submitted that Dr Shiu trusted Chan absolutely and reposed trust and confidence in him. Their relationship was far beyond a mere commercial relationship and put Chan in a position to exercise undue influence over Dr Shiu.  As for Joe Shiu, the long and short of Mr Mak’s submission was that he trusted his father who in turn trusted Chan. When his father arranged for him to learn from Chan, Joe Shiu viewed Chan with respect and admiration.  Since his father reposed trust and confidence in Chan, Joe would naturally do the same.

46.  This court is prepared to accept that the Shius had a lot of trust and confidence in Chan’s business acumen. There is however no evidence that by virtue of such trust and confidence, as well as adimiration in the case of Joe Shiu, Chan was in a position of dominance or ascendancy over the Shius and was able to exercise undue influence over them. Importantly, there is no evidence that Chan had abused the Shius’ trust and confidence in him or acted with any impropriety in procuring the Shius to execute the Loan Documents. In the words of Recorder Ma SC, there is no evidence that the Shius had been forced, tricked or misled[13] in any way by Chan into executing the Loan Documents.

47.  Looking at the matter from the other angle, this court asks: did the Shius consent to the execution of the Loan Documents with full knowledge of the consequences in so doing?

48.  Despite the denial by the Shius, in this court’s view, the answer must be yes. In this regard, the contemporaneous documents and the testimony of Ho are of critical importance.

49.  As far as contemporaneous documents are concerned, there are attendance notes which recorded that Ho had attended the Shius and advised them individually of the risk involved in signing inter alia the Guarantees as well as their option to seek separate and independent legal advice. There are also written confirmations signed by the Shius which corroborated the attendance notes and Ho’s testimony.

50.  In relation to the 1^st Guarantee, the attendance note was dated 27 June 2008 which recorded that Ho had advised the Shius individually regarding the nature of their obligations in signing the 1^st Guarantee. The written confirmations signed by the Shius were also dated 27 June 2008. The contents of the written confirmations were clear and unambiguous. The key parts are as follows:

“2. I confirmed that I instructed the Solicitors’ Firm to act for me in connection with the Guarantee.

3. The Lender had given the Solicitors’ Firm the following information:-

(a) The Lender has extended a loan/facility to the Borrower amounting to USD4,800,000. This means that the Borrower can borrow up to this amount from the Lender upon execution of the security documents including the Guarantee.

(b) The purpose of the loan/facility is for the Borrower to acquire a piece of land on which electrolytic aluminum manufacturing plants and buildings of Guangxi Desheng Universal Aluminum Company Limited are currently built and the Borrower’s other general business purpose.

(c) As at the date of the meeting, the Borrower did not owe any money to the Lender.

...

8. The Attending Solicitor explained to me the Guarantee, my liabilities under the Guarantee and the risks involved in providing the guarantee under the Guarantee.

...

16. My Decision

The Attending Solicitor has told me that I have a choice whether or not to sign the Guarantee.

I have confirmed that:

- I understand the above explanation and understand the contents and effect of the Guarantee.

- I wish ☑ to sign the Guarantee.

...

I further confirmed that when I make this decision, I am making the decision out of my own free will.

...

19. I in signing this letter

(a) confirm the above contents and acknowledge that I have been given and have understood the above advice;

(b) confirm that I have decided, of my own free will, to enter into and execute the Guarantee, I do not require the Lender to vary any of the terms, I do not require any advice on financial aspects, and I agree that the Lender may be told that I have received the advice mentioned in this letter.”

51.  In relation to the 1^st Legal Charge, the attendance note was dated 14 July 2008. It recorded that Ho had explained the nature of the 1^st Legal Charge to the Shius as directors of the 6^th and 7^th Defendants as well as to Dr Shiu personally. There were similar written confirmations of the same date signed by the Shius on behalf of 6^th and 7^th Defendants and by Dr Shiu personally.

52.  Other contemporaneous documents include resolutions in writing dated 26 June 2008 signed by all shareholders and directors of Lanco, including the Shius, approving and accepting all the terms of the 1^st Loan Agreement.

53.  In relation to the 2^nd Guarantee, the attendance note dated 21 January 2009 showed Ho had a telephone conversation with Joe Shiu (who was in Australia) explaining to him the contents of a written confirmation, the 2^nd Guarantee and the 2^nd Loan Agreement. Another attendance note, also dated 21 January 2009, recorded Ho attended Dr Shiu in person and explained to him the effect of a warning notice (ie he could seek other independent legal advice on the 2^nd Legal Charge if he wished to) but Dr Shiu said he did not need independent legal advice since Lanco required the 2^nd Loan urgently. The attendance note also recorded Ho then explained to Dr Shiu the effect of the 2^nd Guarantee, the 2^nd Legal Charge and a written confirmation and witnessed him signing them.

54.  The written confirmation dated 21 January 2009[14] was signed by Dr Shiu in the presence of Ho. The written confirmation was in similar terms to the one in previously signed by Dr Shiu sve that it covered both the 2^nd Guarantee and the 2^nd Legal Charge. The relevant terms are:

“Before I executed a Deed of Guarantee in favour of the Lender and the Legal Charge/Mortgage of the Property (hereinafter collectively called the “Security Document(s)”) to secure a loan/facility from the Lender to Lanco International Holdings Limited (“Borrower”), I attended a private meeting with Mr Ho Wing Kwong Sam (“Attending Solicitor”) at the offices of the Solicitors’ Firm, in the absence of the Borrower.  The Solicitors’ Firm has acted as my/our solicitors in connection with the Security Document(s).  The only persons present at the meeting were the Attending Solicitor and myself.

1. The Attending Solicitor explained to me that:

The role of the Attending Solicitor is to attend this meeting with me in the absence of the Borrower:

(a) to explain to me the nature of the Security Document(s) and the risks involved if the Security Document(s) is signed;

(b) to obtain my confirmation that I instruct the Solicitors’ Firm to act for me in connection with the Security Document(s); and

(c) to ascertain if I am prepared and willing to sign the Security Document(s).  if I sign the Security Document(s), I will not be able to claim afterwards that I am not legally bound by the Security Document(s).

2. I confirmed that I instructed the Solicitors’ Firm to act for me in connection with the Security Document(s).

3. The Lender had given the Solicitors’ Firm the following information:-

(a) The Lender has extended a further loan/facility to the Borrower amounting to CAD2,000,000 in addition to an existing loan of USD4,800,000.  This means that the Borrower can borrow up to the aggregate amount of CAD2,000,000 and USD4,800,000 from the Lender upon execution of the security documents including the Security Document(s).

(b) The purpose of the loan/facility is for the Borrower to acquire a piece of land on which electrolytic aluminum manufacturing plants and buildings of Guangxi Desheng Universal Aluminum Company Limited are currently built and the Borrower’s other general business purpose.

4. A copy of the Security Document(s) was produced at the meeting.  I have been asked to read them carefully and to ask any questions that I may have.  The Attending Solicitor has explained that the following is a summary of the main provisions and implications of the mortgage, but does not cover everything:-

(a) The mortgage is required to give the Lender security for the facility or facilities mentioned in Clause (3)(a) above to be provided to the Borrower.

However, the mortgage will be on “all monies” terms and my liability under the Security Document(s) will be unlimited.

...

6. It is not advisable for me to make myself liable for an unlimited amount as described in Clause (3)(a) above.

...

11. My Decision

The Attending Solicitor has told me that I have a choice whether or not to sign the Security Document(s).

I have confirmed that:

- I understand the above explanation and understand the contents and effect of the Security Document(s).

- I wish  ☑ to sign the Security Document(s).

...

I further confirmed that when I make this decision, I am making the decision out of my own free will.

...

19. I in signing this letter

(a) confirm the above contents and acknowledge that I have been given and have understood the above advice;

(b) confirm that I have decided, of my own free will, to enter into and execute the Security Document(s), I do not require the Lender to vary any of the terms, I do not require any advice on financial aspects, and I agree that the Lender may be told that I have received the advice mentioned in this letter.”

55.  Joe Shiu also signed a written confirmation dated 21 January 2009 while he was in Australia. The confirmation was in similar terms to the one in relation to the 1^st Loan, save that certain revisions were made to reflect the fact that Ho attended him over the phone rather than in person.

56.  This court notes that, as far as the Legal Charges are concerned, this was not the first time the Shius mortgaged the Wanchai Properties as security. As mentioned before, they had mortgaged the Wanchai Properties to the Public Bank as security for the borrowing of Land Partners. When Dr Shiu purchased the MacDonnell Road Property in 1976, it was with the aid of a mortgage from Hang Seng Bank, as shown in the land search record. This court also notes that, as far as the Guarantees were concerned, this was also not the first time the Shius had executed personal guarantees. Lanco’s 2007 accounts showed that all Lanco’s directors had given personal guarantees to secure Lanco’s borrowing from the Bank of China. Dr Shiu was asked about it in cross-examination and admitted that was the case.

57.  Ho was the Plaintiff’s third and last witness. He confirmed the accuracy of inter alia the contents of his attendance notes. He also confirmed he had explained the general effect of the documents in relation to the Loans before the Shius signed them.

58.  This court has carefully considered Ho’s testimony, as well as his demeanour, and assessed it against the documentary evidence and the known and undisputed surrounding circumstances of this case. Ho gave his testimony clearly and calmly and his answers to questions were direct. His credibility has withstood the test of cross-examination.  This court finds Ho a truthful witness. 

59.  In this court’s view, the inherent probabilities are that once Dr Shiu had invested in Lanco and hence the Project, it goes without saying that he desired to see the Project prosper and become profitable. Dr Shiu even went to the extent of making substantial shareholder’s loans to Lanco. In relation to the granting of such shareholder’s loans, there was no suggestion that he was under any undue influence from Chan. When Lanco  needed to borrow in order to carry on with the Project[15], and the prerequisite of such borrowing was personal guarantees from the Shius and mortgages on properties from Dr Shiu and the 6^th and 7^th Defendants, they really had very little choice but to provide them. If the Project flopped, the Shius’ shareholding in Lanco and Dr Shiu’s shareholder’s loans would be in serious jeopardy. In other words, the execution of the personal guarantees and mortgages was a matter of commercial necessity. There was no need for Chan to exercise any influence, undue or otherwise, on the Shius - Chan himself also had to sign a personal guarantee.

60.  To conclude, this court is not satisfied on the evidence that the Shius were procured to execute any of the Loan Documents by virtue of Chan’s undue influence over them. That is enough to dispose of the 1st Issue. In view of this conclusion, the 2^nd Issue becomes wholly academic.

1^st Misrepresentation

61.  The 1^st Misrepresentation can be dealt with very briefly: this court is not satisfied on the evidence that Ho had made the 1^st Misrepresentation.

62.  In Mr Mak’s closing submissions at paragraphs 130 - 134, he summarized his clients’ case as thus:

(a) The 1^st Misrepresentation was that Ho represented to Dr Shiu and Joe Shiu that the Plaintiff would only take legal proceedings against the richest person among them should Lanco fell into arrears. Ho said it once in July 2008 and repeated it in January 2009.

(b) When it was explored at the trial who the “richest person” was, Joe Shiu said that the richest person was Chan because he had 75% share in Lanco. Dr Shiu said he did not care who the “richest person” was because he knew it was not him.  He said by that time he had already taken out all his money (presumably he also meant he had mortgaged all his properties) and he was nearly penniless - the richest person could not be him.

(c) There was nothing wrong about the difference in who the richest person was in the mind of Dr Shiu and Joe Shiu. It was enough that each of them relied upon the statement which apparently was untrue: Chan was not able to put up properties as mortgage securities and Dr Shiu had put forth all his assets and Joe Shiu would not be the richest person.

63.  Ho was asked about the 1^st Misrepresentation three times at trial: during examination-in-chief, cross-examination and then re-examination. Each time, Ho strenuously denied he had ever made the 1^st Misrepresentation.

64.  Ho’s evidence was corroborated by George Chu who also denied that Ho had made the 1^st Misrepresentation at the July 2008 meeting. This court has carefully considered George Chu’s whole testimony as well as his demeanour. George Chu gave his testimony clearly and calmly and his answers to questions were direct. His credibility has withstood the test of cross-examination. This court also finds him a truthful witness. 

65.  All in all, this court is satisfied Ho is telling the truth. In so far as the Shius’ testimony was to the contrary, this court disbelieves them. The reasons are these.

66.  First, it makes no sense whatever to say something like the Plaintiff would only take legal action against the richest person should Lanco default. If the Plaintiff would only take legal action against the richest person, it would simply have asked the richest person, whoever that might be, to give it a personal guarantee.

67.  Second, no one in his right mind would believe it was the Plaintiff’s intention to pursue only the richest person – the whole point of requiring all shareholders to give a personal guarantee was to enable the Plaintiff to take legal action against all of them should Lanco default. In other words, the alleged 1^st Misrepresentation would not have induced anyone to sign the 1^st Guarantee (or the 2^nd Guarantee) and it was totally pointless to make the 1^st Misrepresentation if that were the purpose.

68.  Third, none of Lanco’s shareholders required any inducement before they signed the Loan Agreements, the Guarantees or, in the case of the Shius, the Legal Charges. Lanco needed the Loans badly – Lanco’s accounts for the year ended 31 December 2007 were qualified in that they had been prepared on a going concern basis the validity of which was dependent on the continuing financial support from the directors. In other words, Lanco was not self-sustaining and the moment directors’ support was not available, Lanco would not be a going concern. The balance sheet showed Lanco was cash-strapped – it only had less than HK$150,000 in bank deposit and cash. The Plaintiff, on the other hand, made it a pre-requisite that the shareholders must provide personal guarantees and, in the case of the Shius, mortgage security, as part of the deal. Commercial necessity per se dictated that all shareholders must accede to the Plaintiff’s demand in order to obtain the Loans.

69.  Lastly and importantly, Ho had no incentive whatsoever to make the 1^st Misrepresentation in order to induce any of Lanco’s shareholders, including the Shius, to comply with the Plaintiff’s demand. He had nothing to gain and everything to lose for doing so. The whole course of Ho’s conduct suggests he had been acting cautiously throughout the transactions, with all those attendance notes and written confirmations reasonably well prepared. It is unbelievable that he would be reckless enough to have made the 1^st Misrepresentation at all.

70.  The answer to the 3^rd Issue is no – Ho did not make the 1^st Misrepresentation as alleged. The 4^th and 5^th Issues are thus rendered completely academic.

2^nd Misrepresentation

71.  At paragraph 38(d) of the Amended Defence and Counterclaim, the Shius pleaded this:

“On or about 22 January 2009, the 3^rd Defendant attended the office of Messrs T C Foo & Co together with the 2^nd Defendant and the Plaintiff’s agent, George Chu to sign the Second Loan Agreement, the Second Guarantee, the Second Legal Charge in respect of the MacDonnell Road Property and other related security documents.”

72.  At paragraphs 47 and 48 of his witness statement, Dr Shiu said:

“47. On or around 22 January 2009, I went to TCF’s office as told by John Chan after finishing lunch at home. It was around 3:00 pm and I remembered that the other attendees included John Chan, Jacky Ng, George Chu, and Sam Ho (Lanco’s solicitor). Joe was away in Australia at that time. ...

48. Before I signed the loan and security documents, I asked again what would happen if Lanco could not repay the loan. Sam Ho said that the Plaintiff would only take legal proceedings against the richest person amongst us should Lanco fell [sic] into arrears. I was still very concerned that I would lose my primary residence should Lanco default in payments and John Chan reassured me that I would still retain a life interest to live in the MacDonnell Road Property in that event (“the 2^nd Misrepresentations”). I therefore executed the Second Loan Agreement, the Second Legal Charge and other security documents acting on the faith of the 2^nd Representations and John Chan’s advice.”

73.  Ho said that there was no meeting on 22 January 2009. The only meeting in which he attended Dr Shiu in relation to the 2^nd Loan Agreement, 2^nd Legal Charge and 2^nd Guarantee was on 21 January 2009, as recorded in his attendance note. In his examination-in-chief in the morning of Day 8, Dr Shiu duly revised the date of the meeting to 21 January 2009.

74.  Whether the date of the meeting was 21 or 22 January 2009 is of no significance and this court will not hold it against Dr Shiu for getting the date wrong. What matters is that, while testifying[16], Dr Shiu insisted that Chan was present at the meeting and made the 2^nd Misrepresentation. He also insisted that George Chu was present[17]. This court does not accept Dr Shiu’s testimony and finds both statements untrue. As far as Chan is concerned, his absence at the meeting was finally accepted by Mr Mak towards the end of the trial. As far as George Chu is concerned, this court accepts his testimony that he was not present at the meeting when Dr Shiu executed the 2^nd Loan Documents.

75.  Importantly, this court finds Dr Shiu evasive when testifying. It is not necessary for this court to making a finding as to whether such evasiveness was due to his age, his fading memory and hence his unease in giving direct answers to questions put to him or whether he deliberately intended to lie. For the present purpose, this court is content to find his testimony unreliable.

76.  In Mr Mak’s closing submissions at paragraphs 140-142, he summarized his clients’ case as follows:

(a) Dr Shiu suggested that Chan misrepresented to him that he would retain a life interest in the MacDonnell Road Property despite the 2^nd Legal Charge in the event that Lanco fell into arrears. This caused Dr Shiu to enter into the 2^nd Loan Agreement, 2^nd Guarantee and mortgaged the MacDonnell Road Property. This was the 2^nd Misrepresentation.

(b) Without the 2^nd Misrepresentation, Dr Shiu certainly would not have signed the 2^nd Legal Charge to mortgage the MacDonnell Road Property, his primary residence.  Further, by then he had retired for 24 years and depended solely on his savings and rental income from the Wanchai Properties which were mortgaged.  He still had his wife and his children to take care of.  In particular, he was always worried that Joe Shiu would not be able to make a living by himself.  One could hardly imagine without the assurance under the 2^nd Misrepresentation, Dr Shiu would have mortgaged the MacDonnell Road Property.

(c) Although John Chan was not in Hong Kong when Dr Shiu executed the 2^nd Loan Documents, this is not the end of Dr Shiu’s case. Dr Shiu may not have remembered the precise date when the 2^nd Misrepresentation was made (which took place 6 years ago), this should not by itself mean that the 2^nd Misrepresentation was not made.  It would indeed be strange if Dr Shiu, given his age, could independently state precisely the date of the misrepresentation. Clearly, the 2^nd Misrepresentation induced Dr Shiu to mortgage the MacDonnell Road Property as security for the 2^nd Loan.

77.  As this court said, Mr Mak eventually conceded that Chan was not in Hong Kong when Dr Shiu executed the Loan Documents regarding the 2^nd Loan. The concession was well made. All the contemporaneous documents ie 2 emails exchanged between Ho and Leung on 21 January 2009 and Ho’s attendance note which omitted Chan’s name, suggested that Chan was in China on 21 January 2009. Both Ho and George Chu also testified that Chan was not present at the meeting on 21 January 2009.

78.  The question is: when, if not at the 21 January 2009 meeting, was the 2^nd Misrepresentation made by Chan which induced Dr Shiu to execute the documents in question ? There was not a clue from Dr Shiu. Nor can one be found in Mr Mak’s closing submissions. All that Mr Mak could say was that without the 2^nd Misrepresentation, Dr Shiu certainly would not have signed, inter alia, the 2^nd Legal Charge to mortgage the MacDonnell Road Property which was his primary residence. 

79.  This court does not see why that must be the case. This court does not even see why, on balance of probabilities, that was the case.

80.  Like what this court said earlier, Lanco required the 2^nd Loan in order to carry on with the Project – there is no suggestion otherwise. As a prerequisite of the 2^nd Loan, the Plaintiff required various personal guarantees from Lanco’s shareholders and a mortgage on a landed property from Dr Shiu. CAD 2 million is not a small sum and it would surprising if the Plaintiff would be willing to lend just on the security of personal guarantees. In these circumstances, it seems to this court Dr Shiu had very little choice but to provide the only property left ie MacDonnell Road Property as security. From his point of view, if the Project flopped, the Shius’ shareholding in Lanco and his shareholder’s loans would be in serious jeopardy. Again, the execution of the 2^nd Legal Charge is simply a matter of commercial reality.

81.  Further, why should the Plaintiff ask for the 2^nd Legal Charge and then grant a life interest to Dr Shiu? That would be defeating the purpose of the 2^nd Legal Charge since the Plaintiff could not immediately enforce it should Lanco default. And why should Dr Shiu accept the 2^nd Misrepresentation without question as if it were a matter of course that lenders would normally grant a life interest to mortgagors or that Alan Chu wanted to do Dr Shiu a favour. From experience, it is rarely if not never heard of that a lender would do so. Further, Alan Chu and Dr Shiu did not know each other at all. This court asks: why should Alan Chu do Dr Shiu a favour and why should Dr Shiu believe without question that Alan Chu intended to do him a favour ? Lastly, it would appear from Dr Shiu’s testimony that the concept of a life interest was easily understandable to a layman and was easily understood by him the moment the 2^nd Misrepresentation was made – there is no suggestion that Dr Shiu ever questioned Chan about the meaning of life interest. He just said Chan made the 2^nd Misrepresentation and he relied on it and was induced by it to execute inter alia the 2^nd Legal Charge. In this court’s view, that is really unbelievable.

82.  To conclude, this court is not satisfied on the evidence that the 2^nd Misrepresentation was made. The answer to the 6^th Issue is no. The 7^th and 8^th Issues are rendered wholly academic.

Effect of the Entire Agreement Clauses

83.  In view of this court’s conclusion that neither the 1^st nor the 2^nd Misrepresentation was made, the 9^th Issue also becomes academic.

Interest

84.  Clauses 5.1 and 5.4 of the 1^st Loan Agreement provides that:

“5.1 The Borrower shall pay interest on the Loan at a simple rate of 16.5% per annum, payable in arrears on a monthly basis in sum of USD66,000.00 per month throughout the term of this Agreement.

...

5.4 Without prejudice to any other remedy of the Lender, if the Borrower fails to pay any sum payable under this Agreement when due, or if there shall be an Event of Default, the Borrower shall pay interest on such overdue sum from and including the due date or the date of the occurrence of an Event of Default to the date of actual payment (as well as after judgment) at the rate of 24% per annum on such overdue sum as liquidated damages and, in each case, calculated with reference to such periods and such amounts as the Lender considers appropriate.  Interest under this clause shall be payable by the Borrower to the Lender on demand.”

85.  Clauses 5.1 and 5.4 of the 2^nd Loan Agreement provides that:

“5.1 The Borrower shall pay interest on the Loan at a simple rate of 18% per annum, payable in arrears on a monthly basis in sum of CAD30,000.00 per month throughout the term of this Agreement.

...

5.4 Without prejudice to any other remedy of the Lender, if the Borrower fails to pay any sum payable under this Agreement when due, or if there shall be an Event of Default, the Borrower shall pay interest on such overdue sum from and including the due date or the date of the occurrence of an Event of Default to the date of actual payment (as well as after judgment) at the rate of 24% per annum on such overdue sum as liquidated damages and, in each case, calculated with reference to such periods and such amounts as the Lender considers appropriate.  Interest under this clause shall be payable by the Borrower to the Lender on demand.”

86.  In their Consolidated Amended Defence and Counterclaim at paragraph 49, the Shiu Defendants pleaded no positive averment to the Plaintiff’s claim for contractual default interest of 24% p.a. - it just contained a bare denial.

87.  In his closing submissions at paragraphs 159 – 162, Mr Mak also said apart from the exclusion of approximately 1 year in the calculation of interest, there was no dispute on the calculations of interest from the Plaintiff’s solicitors’ recent letter. The reason for the exclusion of that period was put in this way at paragraph 160:

“By judgment of 30 December 2011, Deputy High Court Judge Au-Yeung (as she then was) held that, on an application by the 3^rd, 4^th, 6^th and 7^th Defendants to strike out the Statement of Claim for want of prosecution and the Plaintiff’s application for extension of time to file its consolidated statement of claim :

‘The extension of time is subject to the condition that the Plaintiff shall be deprived of interest on any judgment sum it shall recover for the period from 24.11.2010 (1^st day after expiry of time under the Consolidation Order) to 25.10.2011 (the date of the time summons).’”

88.  The Plaintiff’s calculations of interest due under the Loan Agreements at the rate of 24% p.a. were set out in Annex 6 and Annex 7 of Mr Barlow’s closing submissions. As a result of the exchanges between this court and Mr Barlow on the last day of trial, leave was given to the Plaintiff to submit re-calculated Annexes 6 and 7 and leave to the Shiu Defendants to submit their calculations in response.

89.  The Plaintiff duly filed and served their re-calculations of interest, again using the contractual default rate of 24%.

90.  Mr Mak, on the other hand, added to his calculations in response, further submissions on interest which, for the first time, raised the point that Clause 5.4 was a penalty clause and hence unenforceable. At paragraph 12(2) of those submissions, Mr Mak said:

“The increase in interest rate after default amounts to 7.5% (24%-16.5%), or an increase of some ((24%-16.5%)/16.5 x 100% =) 45% in this case. Based on established jurisprudence, this should not be considered ‘modest’ or ‘justifiable’, especially in light of the absence of any explanation from the Plaintiff as to what (if any) commercial purpose the additional 7.5% serves.”

91.  The issue of Clause 5.4 being a penalty clause was not pleaded. It is understandable that the Plaintiff adduced no evidence on the commercial justification of it. It was also not canvassed at trial when Mr Alan Chu gave his testimony - it was not put to Alan Chu in cross-examination that Clause 5.4 was a penalty clause.  The Plaintiff was thus given no opportunity to explain the commercial rationale of the increase from 16.5% to 24% p.a. in the 1^st Loan Agreement or the increase from 18% to 24% p.a. in the 2^nd Loan Agreement. In these circumstances, there was naturally no explanation from the Plaintiff as to what commercial purpose the additional percentage points served.

92.  Moreover, at paragraph 162 of his closing submissions, Mr Mak confirmed that “There is no dispute on the calculations of interest from Shaw & Ng’s recent letter”. The so-called recent letter should be a reference to a letter dated 18 November 2015 from Shaw & Ng in which the Plaintiff suggested that the total amounts claimed were:

(a) CAD 6,048,000.00 (principal) + USD 6,991,995.62 (interest) under the 1^st Loan Agreement, 1^st Guarantee and the 1^st Legal Charge;

(b) CAD 3,544,824.05 (principal plus interest) under the 2^nd Loan Agreement, 2^nd Guarantee and 2^nd Legal Charge.

93.  The calculations of interest were done on the basis of the default interest rate of 24%.

94.  Lastly, this court takes the view that the penalty clause point is something which, if not specifically pleaded, might take the opposite party by surprise: RHC O 18 r 8(1)(b).

95.  For all these reasons, this court holds that the Shiu Defendants are not permitted to raise the penalty point at such a late stage.

96.  In any event, in re Mandarin Container & Ors [2004] 3 HKLRD 554 at [13], the learned Judge, after reviewing the authorities, summarized the modern approach to penalty clauses as follows:

“... the modern approach to penalty clauses is to look at whether in respect of a commercial contract, the disputed provision can be said to be unconscionable or oppressive by reason of its being extravagant, exorbitant or excessive and that the court should be slow to find terms agreed by the parties to be in terrorem rather than genuine agreement providing for fixed formula of loss.” (emphasis added)

97.  In the absence of material evidence, it is difficult to see how one could judge from the additional percentage points per se that Clause 5.4 is a penalty clause in the sense of it being “extravagant, exorbitant or excessive”. Hence, even if the Shiu Defendants were permitted to raise the penalty point, this court would not be minded to uphold that point.

98.  To conclude, this court is satisfied that the Plaintiff is entitled to charge the contractual default (simple) interest of 24% p.a. from the time of default on the part of Lanco in making the relevant monthly periodic payment of US$66,000 and CAD30,000. It is common ground that the first of such default was on 15 April 2009.

99.  The next question is whether the default interest rate is applicable after judgment, as provided for in Clause 5.4, instead of until judgment.

100.  It is trite law that a trial judge has a discretion to determine the rate of interest. It is also a long-standing and common practice of the Court of First Instance to award, by express order or by default, interest on judgment debts at the judgment rate which is determined by the Chief Justice from time to time: Hong Kong Civil Procedure 2016 Vol 2 para E1/49/3. This court ventures to suggest that one of the reasons why the courts are normally content to adopt the judgment rate is for the sake of consistency and certainty.

101.  From experience, judgment rate is always higher than the prime lending rate publishing by major banks in Hong Kong such as HSBC. It is also always higher than the commercial rate of prime plus 1% laid down by the Court of Appeal in Komala Deccof & Co SA v Pertamina [1984] HKLR 219. In the ordinary course of events, the fact that judgment rate is always higher than the prime lending rate or the commercial rate is itself a sufficient incentive for a losing defendant to pay up the judgment debt earlier rather than later. The fact that judgment rate is always higher than the two other rates also means that a winning plaintiff will be amply compensated for being kept out of money which ought to have been paid to him, which is the principal objective of awarding interest:  London, Chatham and Dover Ry Co v South Eastern Ry Co [1893] AC 429 at 437 (Lord Herschell LC).

102.  Mr Barlow is not content with judgment rate and refers this court to a passage in Hong Kong Civil Practice 2015 Vol 1 at 42/1/16 and the House of Lords decision in Economic Life Assurance Society v Usborne [1902] AC 152[18].

103.  This court has read the decision itself and is not satisfied that it supports the wide proposition stated in Hong Kong Civil Practice 2015 Vol 1 at 42/1/16 or assists Mr Barlow. The actual decision was that on the true construction of a mortgage deed, the mortgagees were entitled to retain their security until they were paid the principal sum and interest as stated in the mortgage ie 5% p.a. which was higher than the then judgment rate. On the other hand, in the present case, this court is concerned with whether a provision in a loan agreement justifies the exercise of this court’s discretion in awarding post-judgment interest at 24% p.a. which is 3 times the judgment rate.

104.  It seems to this court that awarding interest at such a rate is wholly unjustified in that it will grossly over-compensate the Plaintiff and undermines the certainty and consistency established by the practice of the courts in awarding post-judgment interest at judgment rate. In the absence of authorities or any considered submissions by either parties, this court is not satisfied that it should do so.

105.  To conclude, this court holds that the default interest rate of 24% shall apply until judgment only. Thereafter, interest will be at the prevailing judgment rate.

106.  The last issue is whether the period from 24 November 2010 to 25 October 2011 should be excluded for the purpose of calculating interest, as held by DHCJ Au-Yeung (as she then was).

107.  The only answer from Mr Barlow is that this court is not bound by her Ladyship’s ruling. Whether or not this court is bound by the learned Judge’s ruling, this court finds no basis to depart from it. The reasons in support of the ruling are stated clearly in her judgment dated 30 December 2011. Essentially, the learned Judge considered there was inordinate delay on the part of the Plaintiff. Instead of striking out the action on the ground of delay, she considered penalty in the form of deprivation of interest was sufficient. This court is content to adopt those reasons and holds that the period from 24 November 2010 to 25 October 2011 should be excluded from the calculation of interest.

Plaintiff’s case against Chan

108.  The Plaintiff’s case against Chan is put on the same basis as its case against the Shius. Since Chan did not attend the trial, his witness statement was not adduced as part of the evidence in the trial. As there is no evidence from Chan in contradiction, this court finds the Plaintiff’s case duly proved on the evidence.

Shiu Defendants’ case against Lanco

109.  Dr Shiu and Joe Shiu have testified on behalf of all the Shiu Defendants in support of their case against Lanco as stated in the Third Party Statement of Claim. There is no evidence from Lanco to contradict their testimony.

110.  As surety for Lanco at the request of Chan on behalf of it, there is little doubt that the Shius have a right to be indemnified in respect of their liability to the Plaintiff under an implied contract[19] and this court so holds.

111.  Mr Mak also argues for a declaration that the Shius, as surety, are entitled to be subrogated to the Plaintiff’s rights against Lanco upon full payment to the Plaintiff. On the evidence, the chances of this happening are next to zero and the declaration is rather academic. This court declines to make an academic declaration.

112.  As far as the 6^th and 7^th Defendants are concerned, Mr Mak submits that a mortgagor is recognized in law as a surety and hence enjoys the same rights to be indemnified by the principal debtor as a guarantor does. As stated in Fisher and Lightwood’s Law of Mortgage 14^th Ed at para 45.7:

“A person who has mortgaged his property to secure the debt of another is presumed in the absence of other evidence to be only a surety and is entitled to be exonerated by the principal debtor.”

113.  The learned editors of Halsbury’s Laws of England 5^th Ed Vol. 49 (2015) are of the same view. At para 777, they observed that:

“A person who mortgages his property to secure the debt of another stands in the relation of guarantor towards the person whose debt is thus secured, and is entitled to be exonerated by the principal debtor.”

114.  This court accepts Mr Mak’s submissions and holds that the 6^th and 7^th Defendants have such a right of indemnity against Lanco. This court declines the declaration that the 6^th and 7^th Defendants, as surety, are entitled to be subrogated to the Plaintiff’s rights against Lanco upon full payment, for the reason that this is also academic.

Shiu Defendants’ case against Chan

115.  The Shiu Defendants’ case again Chan was put on two bases:

(a) If this court should find there has been undue influence or misrepresentation by Chan, the Shius are entitled to claim against him the sum found due to the Plaintiff as damages.

(b) If this court should find there has been no undue influence or misrepresentation by Chan, the Shius are entitled to a declaration that each of them, as co-surety, is entitled to contribution from him for payments over and above each of their 1/6^th share of liability to the Plaintiff while each of the 6^th and 7^th Defendants is also entitled a similar declaration.

116.  Since this court has found that Chan had not made the 2^nd Misrepresentation, it only needs to consider the issue of contribution.

117.  Where two or more persons guarantee the same debt, whether jointly, severally or jointly and severally, they are co-sureties.  In general, the law of restitution permits co-obligees to recover contributions from each other should one of them be required by the creditor to pay more than their due share of a common obligation for which they are all liable. The surety’s right of contribution is based upon the equitable principle that the creditor should not be permitted to bring down the burden of the whole debt upon one surety only and recognizes that the co-sureties have a common interest and a common burden: Andrews and Millett Law of Guarantees 7^th Ed para 12-001.[20]

118.  This court accepts Mr Mak’s submissions and shall make the appropriate declaration to reflect that.

Disposition and Costs Order Nisi

119.  There shall be judgment in favour of the Plaintiff against the 2^nd, 3^rd, 4^th, 6^th and 7^th Defendants, jointly and severally, the sums of

(a) CAD6,048,000 together with interest at 24% p.a. from the relevant dates of default, beginning 15 April 2009 (or their Hong Kong Dollars equivalent) until judgment, and thereafter at judgment rate until payment.

(b) CAD2 million together with interest at 24% p.a. from the relevant dates of default, beginning 15 April 2009 (or their Hong Kong Dollars equivalent) until judgment, and thereafter at judgment rate until payment.

120.  There shall be an Order that the 3^rd Defendant do deliver vacant possession of the 3^rd Property and the MacDonnell Road Property to the Plaintiff, not earlier than 42 days from the date of this Judgment.

121.  There shall be an Order that the 6^th Defendant do deliver vacant possession of the 1^st Property to the Plaintiff, not earlier than 42 days from the date of this Judgment.

122.  There shall be an Order that the 7^th Defendant do deliver vacant possession of the 2^nd Property to the Plaintiff, not earlier than 42 days from the date of this Judgment.

123.  There shall be a declaration that the 3^rd, 4^th, 6^th and 7^th Defendants are, as sureties, entitled to be indemnified by the 1^st Defendant to the extent of any payment made by any of them (including, in the event of sale of the Wanchai Properties and the MacDonnell Road Property, the proceeds of sale) of the sums found due and owing to the Plaintiff. 

124.  There shall be a declaration that, upon the 3^rd, 4^th, 6^th and 7^th Defendants paying their respective share, that is, one-sixth of the amount found due and owing to the Plaintiff, whether through the proceeds of sale of the Wanchai Properties and the MacDonnell Road Property or otherwise, each of them is entitled to claim contribution from the 2^nd Defendant for any payment over and above the liability of each of them.

125.  There shall be a costs order nisi that the 3^rd, 4^th, 6^th and 7^th Defendants do pay the costs of the Main Action to the Plaintiff, to be taxed if not agreed on an indemnity basis, with certificate for 2 Counsel.

126.  There shall be a costs order nisi that the 1^st and 2^nd Defendants do pay the costs of the Indemnity Action to the 3^rd, 4^th, 6^th and 7^th Defendants to be taxed if not agreed on an indemnity basis, with certificate for 2 Counsel.

127.  General liberty to apply.