ALLIED TREASURE INVESTMENT LTD v. CHAN KA LING AND ANOTHER

HCMP 1700/2016

[2020] HKCFI 3135

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1700 OF 2016

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DECISION

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A. INTRODUCTION

1.  This was the trial of the Plaintiff’s action against the 1^st and 2^nd Defendants.

2.  The Plaintiff (“the Lender”) is a licensed money lender.

3.  The 1^st Defendant (“the Daughter”) is the sole owner of two properties known as Flat D on the 7th Floor (“Flat 7D”) and Car Parking Space No 16 on Ground Floor Level (“CP 16”), Belmont Heights, No 3 Marconi Road, Kowloon (together, “the Properties”).

4.  The 2nd Defendant (“the Father”) is the 1^st Defendant’s father.

5.  The present action was originally commenced by way of Originating Summons (“OS”) dated 5 July 2016.  It was converted into a writ action by order dated 20 January 2017.  As set out in the Statement of Claim dated 9 February 2017, the Lender claims against the 1^st and 2^nd Defendants for inter alia:

(1)  Sums said to be due and owing under a loan (“the Loan”) advanced pursuant to an agreement dated 10 November 2015 (“the Loan Agreement”); and

(2)  Delivery up of vacant possession of the Properties, which it is said were mortgaged to the Lender by way of a First Mortgage dated 10 November 2015 as security for the Loan (“the Mortgage”).

6.  At trial, the Lender was represented by Counsel Mr Stanley CK Siu, the Daughter was represented by Counsel Ms Sabrina Ho and Ms Jacqueline Law, and the Father appeared in person.

B. BACKGROUND

7.  The relevant background which is undisputed, or cannot seriously be disputed, is set out below.

8.  The Lender is a licensed money lender. 

9.  The Daughter acquired the Properties on 23 July 2007 and has been registered as the sole owner since that date.  Over the years, the Daughter, who was based in Australia, had appointed the Father to act as her attorney in respect of inter alia the Properties.

10.  Upon purchase, the Properties were mortgaged in favour of Dah Sing Bank Limited on 23 July 2007.  This mortgage was discharged on 23 March 2015.

11.  On the basis of an earlier general power of attorney granted by the Daughter to the Father, the Father arranged for a series of mortgages of the Properties with Glory Sky Finance Limited (“Glory Sky”).  These were entered into and discharged on the following respective dates:

(1)  Second mortgage dated 26 February 2014 for HK$1,300,000, discharged on 23 January 2015.

(2)  Third mortgage dated 17 April 2014 for HK$1,000,000, discharged on 10 June 2014. 

(3)  Fourth mortgage dated 10 June 2014 for HK$1,700,000, discharged on 23 January 2015. 

12.  Both the Father and the Daughter say that the Glory Sky mortgages were entered into without the Daughter’s knowledge.

13.  The above-mentioned general power of attorney was revoked by the Daughter in January 2015.

14.  One of the key documents in the present case is a subsequent Power of Attorney dated 13 January 2015 (“the POA”).  By the said POA, the Daughter appointed the Father to act as her attorney.  The POA is not a general power of attorney under Section 7 of the Powers of Attorney Ordinance (Cap 31), but rather is a special power of attorney.  It was revoked on 11 April 2016.

15.  In or about May 2015, the Father arranged for a loan from the Lender, utilizing the Properties as security. 

16.  On 11 May 2015, the Father executed the following documents, for himself and/or also, relying on the POA, in his capacity as attorney for the Daughter:

(1)  A loan agreement for HK$5,100,000 (“May Loan Agreement”) which identified the Daughter and the Father as borrowers, being jointly and severally liable therefor.

(2)  An acknowledgment to confirm receipt of the Form of Summary of Provisions of the Money Lenders Ordinance (Cap 163) (“MLO”).

(3)  A mortgage of the Properties as security for the HK$5,100,000 loan (“the May Mortgage”).

(4)  An Assignment of Rental to assign all rentals received under the tenancy agreement for Flat 7D to the Lender. 

(5)  A written confirmation letter, in his capacity as attorney for the Daughter, to confirm knowledge and consent about the May Mortgage.

(6)  A written instruction, in his capacity as attorney for the Daughter, instructing the Lender’s Solicitors, Messrs B C Chow & Co (“BC Chow”) to release the balance of the loan to the Father.

17.  The net amount of HK$5,029,250 (after deduction of expenses, legal costs, etc.) was paid by the Lender to the Father’s sole name by way of a cheque.  The Father deposited this into his own account.

18.  As part of the arrangement for the above, the Father had indicated to BC Chow that he had lost all of the title deeds to the Properties.  As a result, he arranged with another firm of solicitors for a Statutory Declaration dated 4 May 2015 (“1^st SD”) to the effect that all the title deeds had been lost. 

19.  The 1^st SD could not be registered at the Land Registry as it covered, in addition to the Properties, the title deeds for a property known as Car Parking Space No 23 on Ground Floor Level, Belmont Heights, No 3 Marconi Road, Kowloon.  As a result, BC Chow prepared a second Statutory Declaration (“2^nd SD”) which only covered the Properties. The 2^nd SD was signed on or about 20 October 2015, and was registered thereafter.

20.  In about October 2015, the Father made inquiries with the Lender for a further loan of HK$600,000 to be secured by the Properties. It was agreed that a fresh loan of HK$5,700,000 would be extended, which would be used to repay the loan under the May Loan Agreement. 

21.  As a result, the Father executed the following documents, for himself and/or also, relying on the POA, in his capacity as attorney for the Daughter:

(1)  On 6 November 2015, the Father signed in his capacity as attorney for the Daughter, a “Warning Notice to the Mortgagor”.

(2)  On 10 November 2015:

(a)  The Loan Agreement, which identified the Daughter and the Father as borrowers, being jointly and severally liable therefor.

(b)  The Mortgage.

(c)  An Assignment of Rental to assign all rentals received under the tenancy agreement for Flat 7D to the Lender. 

(d)  A written confirmation letter, in his capacity as attorney for the Daughter, to confirm knowledge and consent about the May Mortgage.

(e)  A written instruction, in his capacity as attorney for the Daughter, instructing BC Chow to release the balance of the loan to the Father.

22.  As a result of the above, part of the $5,700,000 was used to repay the May loan, and the net surplus amount of HK$525,900 was paid by way of cheque from the Lender to the Father.  The Father deposited this into his own account.

23.  There is no dispute between the parties that throughout all of the above-mentioned arrangements with the Lender:

(1)  The Father was the one who dealt with the Lender and BC Chow.  The Daughter did not meet or contact the Lender’s representatives until after the loans and mortgage had been arranged and there had been default on repayment.

(2)  The Father utilized the POA in making the above-mentioned arrangements.  This had been handed to the Lender’s representatives for consideration in the course of making the arrangements for the loans, and was reviewed by them.

(3)  During the process of arranging the loans and the signing of all the relevant documents, neither the Lender’s representatives nor BC Chow contacted or met with the Daughter, the stated reason being their reliance on the terms of the POA.

(4)  All of the above-mentioned documentation for the May loan and the subject Loan was signed by the Father alone, whether for himself or in his capacity as attorney for the Daughter.

(5)  The funds were all deposited into the Father’s account, the cheques having been issued to him in his sole name.

24.  In March 2016, there was a default in repaying the interest under the Loan Agreement. 

25.  As set out above, the OS was issued on 5 July 2016.

C. THE PARTIES’ RESPECTIVE CASES

C1.    THE LENDER

26.  On the basis of the Loan Agreement and the Mortgage, the Lender seeks inter alia the following:

(1)  The outstanding balance and interest under the Loan Agreement, for which both the 1^st and 2^nd Defendants are said to be liable.  In the Statement of Claim, the amounts sought are:

(a)  HK$5,700,000, being the principal originally advanced;

(b)  HK$272,463.01, being interest in arrears as at the date of the OS;

(c)  Interest on the Loan and unpaid monthly interest at the contractual rate from 10 June 2016 onwards or at such rate and such amounts as the Court thinks fit; and

(2)  On the basis of the Mortgage, the Lender seeks delivery up of vacant possession of the Properties to the Lender.

C2.    THE DAUGHTER

27.  The Daughter denies liability.  She raises the following defences:

(1)  First, she alleges that on the proper construction of the POA, the Father had no actual authority to execute the Loan Agreement, the Mortgage or the Assignment of Rental on behalf of the Daughter.

(2)  Second, the Father had no apparent authority to execute the Loan Agreement, the Mortgage or the Assignment of Rental as attorney of the Daughter as, by reason of the POA, the Lender had notice of the Father’s restricted scope of authority (citing inter alia Overseas Trust Bank v Tang Chi-Ching [1994] 2 HKLR 73 at 74).

(3)  Third, the Father had placed himself in a position of conflict and was in breach of his fiduciary duties owed to the Daughter in executing the Loan Agreement, the Mortgage and the Assignment of Rental on behalf of the Daughter (citing inter alia Articles 36, 43 and 44, Bowstead & Reynolds on Agency, (21^st Edn) at §§6-002, 6-033 and 6-046).  The Lender had actual or constructive notice of the said breach of fiduciary duties (which would negate the effectiveness of the Father’s signature on behalf of the Daughter on the said documents).

28.  All of the above three defences turn on the construction and understanding of the scope of the POA, and in effect, stand or fall together on such basis.

29.  The Daughter also raises a fourth defence.  She takes the position that even if, on the construction of the POA, the Father had actual and/or apparent authority (and in consequence, he would not be in breach of his fiduciary duties, and/or the Lender would not have been put on notice of the said breach), she is nonetheless not liable as the Loan Agreement, the Mortgage and the Assignment of Rental are unenforceable against her by reason of the Lender’s breaches of S 18(1) of the MLO.  In particular, she relies on the fact that:

(1)  The Lender failed to ask the Daughter to personally sign the note / memorandum of the Loan Agreement; and

(2)  The Lender failed to provide a copy of the note / memorandum to the Daughter at the time of signing.

30.  In relation to the above, she takes the position that the Court should not exercise its discretion under S 18(3) of the MLO to allow enforcement of the above instruments against her. 

31.  By way of her counterclaim, the Daughter seeks declaratory relief that the Loan Agreement, the Mortgage and the Assignment of Rental are not valid or binding, or alternatively not enforceable as against her.

C3.    THE FATHER

32.  The Father also denies liability.  He relies on the following:

(1)  A plea of non est factum, essentially stating that whilst he did sign on all of the relevant documents, he does not read or understand English and no one explained the content, nature and purpose of the same to him in Chinese. 

(2)  A plea that he did not know and was not aware that he was asked to mortgage the Properties in order to obtain the Loan.

33.  By his counterclaim, the Father also seeks declaratory relief that the Loan Agreement, the Mortgage and the Assignment of Rental and not valid or binding, or alternatively not enforceable as against him.

D.      THE POA

34.  In terms of analysis, the first three defences raised by the Daughter (summarized at paragraph 27 above) stand or fall on the construction and interpretation of the terms of the POA.  It thus makes sense to first consider this aspect of the case before turning to the evidence and the remaining issues as to S 18 of the MLO, as well as the Daughter’s remaining (fourth) defence and the Father’s defences. 

D1.    RELEVANT LEGAL PRINCIPLES

35.  On the principles of construction for the POA:

(1)  The Lender and the Daughter agreed that the POA is to be construed strictly. 

(2)  Where an act purporting to be done under the POA is challenged as being in excess of authority conferred by the power, it is necessary to prove that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument, either in express terms or by necessary implication. 

(3)  The operative part of a deed is controlled by the recitals where there is ambiguity.

(4)  Where authority is given to do particular acts, followed by general words, the general words are restricted to what is necessary for the proper performance of the particular acts.

(5)  General words do not confer general powers, but are limited to the purpose for which the authority is given, and are construed as enlarging the special powers only when necessary for that purpose. 

(6)  A deed must be construed so as to include all incidental powers necessary for the effective execution of the power it confers.

(7)  The Lender and the Daughter also agreed that extrinsic evidence is not admissible for the purposes of construing the meaning and effect of the POA. 

(Bryant, Powis and Bryant Ltd v La Banque de Peuple [1893] AC 170 at 177; Bowstead & Reynolds on Agency (21^st Edn) at Article 24, §§3-013 – 3-014). 

D2.    ANALYSIS

36.  The key clause which is the subject of dispute is Clause 6 of the POA, which reads as follows:

“I, CHAN KA LING (陳家翎) [the Daughter] do hereby nominate and constitute and appoint the Attorney [the Father] to be my true and lawful attorney for me and in my name or in the name of the Attorney to do execute and perform all or any of the following acts deeds and things in respect of the said premises that is to say:-

…

6.     From time to time if and when the Attorney shall think fit to mortgage, charge, pledge or otherwise dispose of the Property or any part thereof for such consideration and upon such terms and conditions as the Attorney shall in his absolute discretion think fit, to receive the consideration and the same or any of them payable to me in my name solely or in the name of the Attorney solely or other monies for the same and to give good receipts and proper discharges therefor, which receipts shall exonerate the person(s) and/or corporation(s) paying such monies from seeing to the application thereof or being responsible for the loss, non-application or mis-application thereof.”

37.  Also relevant is Clause 7, which reads as follows:

“7. To execute sign seal and as my act and deed deliver enter into knowledge perfect and do all such mortgages, legal charges, charges and all other instruments deeds and documents as shall be required or may be deemed proper for or in relation to all or any of the purpose or matters aforesaid.”

38.  The Lender’s case is that the above clauses gave the Father the full discretion to arrange for the Loan and the Mortgage, and to sign all the relevant documentation for and on behalf of the Daughter, and to receive the Loan funds into his own account.  Particular emphasis is placed on inter alia the following phrases in Clause 6:

(1)  “… when the Attorney shall think fit…”

(2)  “… to receive the consideration and the same or any of them payable to me in my name solely or in the name of the Attorney solely…”

(3)  “… and to give good receipts and proper discharges therefor, which receipts shall exonerate the person(s) and/or corporation(s) paying such monies from seeing to the application thereof or being responsible for the loss, non-application or mis-application thereof.”

39.  The Lender further points to the following factors in support of its interpretation:

(1)  There was no specific clause requiring any third party to notify the Daughter if a mortgage or any other similar arrangement was to be put into effect.

(2)  Clause 6 was not drafted such that the monies had to be payable to the Daughter alone.  Rather, it provided for the consideration to be payable “in my [ie the Daughter’s] name solely or in the name of the Attorney solely”.

(3)  The clause could thus be understood as specifying “to receive the consideration … payable to me in my name solely” or “to receive the consideration … payable to me … in the name of the Attorney solely”, there being no indication that there should be any preference that the consideration should go to the Daughter as a default, with the Father (as Attorney) being the fallback.

(4)  The POA in question was on its face proper and not suspicious.  It would be self-defeating of the purpose of the POA if it required a third party dealing with the Attorney in good faith (such as the Lender) to go back to the donor to ascertain whether they were aware of the transaction in question being conducted or to ascertain the purpose of the transaction in question (in this case, the Loan and who it was to benefit). 

40.  On the other hand, the Daughter’s case is that a proper understanding of the clause means that the Father, as attorney, had no power to:

(1)  Obtain any loans which were not solely for the benefit of the Daughter; or

(2)  Use the Properties as security for any loans which are not solely for the benefit of the Daughter.

41.  Given that in the present case, the Loan was in both the Father’s and the Daughter’s names as co-borrowers, and hence was not for her sole benefit of the Daughter, it is her case that the Loan and Mortgage arrangements exceeded the scope of the POA and are thus void or unenforceable as against her.

42.  In asserting such a case, the Daughter relies upon the following points of construction, contrary to the Lender’s understanding above.

43.  Insofar as Clause 6 is concerned, she places particular emphasis on the phrase “payable to me” within the context of “to receive the consideration and the same or any of them payable to me in my name solely or in the name of the Attorney solely and to give good receipts and proper discharges therefor ….”.  She draws a distinction between entitlement to the consideration for the mortgage funds (which belongs to the Daughter solely), and the mode by which the proceeds payable to the Daughter can be received.  On her case, Clause 6 does not allow the Attorney to obtain a loan on the security of the Properties in his own name, or jointly with the Daughter (entitlement); rather, it only allows the Attorney to arrange for loan funds obtained on the security of the Properties for the Daughter’s benefit alone, which funds can then be paid into the Attorney’s sole name account (mode).

44.  She also references other parts of the POA to support such understanding.

45.  She points to Paragraphs (1) and (2) of the Preamble, which sets out the fact that the Daughter is the sole registered and beneficial owner of the Properties, and that the objects of the POA are to appoint the Father “to be my true and lawful attorney for me and in our name or in the name of the Attorney to do execute and perform all or any of the following acts deeds and things in respect of our interest right title benefit and entitlement of and in the same premises…”.

46.  She further points to the following clauses in support of the argument that it is readily apparent that the Attorney’s powers were all for the sole benefit of the Daughter, and there was nothing in the POA which suggested that the Father could use the Properties for his own purposes:

(1)  Clause 3: “To demand sue for and receive all rents and arrears of rent now due or which at any time hereafter shall become due to us by any tenant or tenants…in respect of the said premises or any part or parts thereof”;

(2)  Clause 13: “To settle compromise and submit to arbitration all accounts claims and disputes between me and any other person concerning the said premises”;

(3)  Clause 14: “To institute such legal proceedings as the Attorney may think proper and to defend any legal proceedings brought against the said premises or against me as the registered owners thereof”;

(4)  Clause 15: “To claim and receive from the Government or other proper authorities any sum or sums of money by way of refund of Government rent or rates paid by and returnable to me…”;

(5)  Clause 18: “To sell…or exchange the said premises or any part or parts thereof for such consideration…as the Attorney may think fit and to give receipts for all or any part of the sale proceeds or exchange or other consideration money and the same or any of them payable to us in our name solely or in the name of the Attorney solely [or in the joint-names of ourself and the Attorney], such receipt shall exonerate the person or persons paying such consideration or other money from seeing to the application thereof or being responsible for the loss or misapplication thereof”;

(6)  Clause 19: “For all or any of the purposes of these presents to execute sign seal and as our act and deed deliver enter into give acknowledge perfect and do all such tenancy agreements…and for such purpose aforesaid or any of them to draw sign accept all cheques and orders for payment or money payable by or to us”;

47.  There is an oddity in the POA, however, where at certain points, including in some of the Clauses cited above, it references “our interest”, “[sums] … due to us”, “payable to us in our name…”, etc.  (emphasis added).  Such phrases are peppered throughout the POA and would, at first blush, seem to introduce a degree of ambiguity into the understanding of the document and what powers the Father is entitled to exercise and for whose benefit.  Based on these phrases, which the Lender would presumably rely on, it could be argued that the powers may be exercised to benefit the Daughter and the Father together.  The references are not consistent.  There are other clauses where the pronouns are in the singular and not the plural.

48.  The Daughter seeks to explain this away by suggesting that the pronouns in the plural form “our” or “us” are typographical errors and should be in the singular form “my” or “myself”, having regard to the fact that the Daughter was the only donor in the POA.  She says that this follows from the fact that she is the sole registered and beneficial owner of the Properties, and only she has any interest, right, title, benefit and entitlement in the Properties. 

49.  Whilst this is a persuasive argument, it involves doing a degree of violence to the language of the POA, as one would have to construe quite a number of phrases in the operative clauses as being materially different from the form in which they were drafted.

50.  During closing submissions, I explored an alternative understanding with Ms Ho of Clauses 6 and 7, namely that those specific clauses did not suffer from any ambiguity in that the pronouns in those two clauses were all in the singular in any event.  Whatever understanding one might have of the other parts of the POA (viz, Preamble (2), Clauses 3, 18, 19 and the paragraph below Clause 21, which contain plural pronouns), it is clear on the face of Clause 6 that the phrase was “payable to me” (ie the Daughter) and not “us”. 

51.  As regards this particular point (singular vs plural pronouns), Mr Siu indicated that there was nothing to prevent an agent from signing a document in addition to what he had been authorized by the principal (donor) to sign, and that in fact the addition of the Father as co-borrower was beneficial to the Daughter in that he was made jointly liable for the Loan.  He also cited a number of cases which stand for the propositions that at attorney may sign a document in his own right and enter into contractual arrangements alongside his principal (Young v Schuler (1883) 11 QBD 651 and International Railway Company v Niagara Parks Commission [1941] AC 328).  However, this does not seem to directly answer the construction point, which I have outlined above.

52.  In support of the above construction, Ms Ho further cites authority which stands for the proposition that the primary object of a power of attorney is to enable the attorney to act in the management of the principal’s affairs.  An attorney cannot, in the absence of clear power to so do, make presents to himself or to others of his principal’s property (Overseas Trust Bank v Tang Chi-Ching [1994] 2 HKLR 73 at 77; Reckitt v Barnett, Pembroke and Slater, Ltd [1928] 2 KB 244 at 268, subsequently approved by the House of Lords in [1929] AC 176).  I do not believe there can be much dispute on this as a general proposition, but ultimately, the construction of each clause in any given case turns on its own terms.

53.  There is, somewhat surprisingly, limited case authority in Hong Kong on this issue – namely, the construction of clauses in powers of attorney which would appear to grant the attorney powers to mortgage the property.  Each case must turn on its own facts and its own particular clause, but for the sake of completeness, I do take note of a case which was cited by both Mr Siu and Ms Ho – Wealth Lee Finance Ltd v Ng Fun Lung & Anor [2019] HKDC 68.  In that case, the subject clause was in the following terms:

“From time to time if and when the Attorney shall think fit to … mortgage, charge … the said premises or any part thereof for such consideration and upon such terms and conditions as the Attorney shall in his absolute discretion think fit, to receive the consideration or other monies for the same … provided always that such consideration or other monies to which the Donor is entitled shall be made payable to the Donor’s name only by cashier order(s) or solicitors’ cheque(s).” (emphasis added)

54.  The obvious distinction is that the clause in the Wealth Lee provided that the consideration or other monies would be payable to the donor’s name only, and uses the phrase “to which the Donor is entitled” to delineate entitlement.  Mr Siu’s point is that no such similar clause was included in the present case, there having been, instead, the wider form of wording in Clause 6.  Ms Ho’s accepts that there is a distinction in the wording, but relies on the case nonetheless as an example of a situation in which an attorney was found to not have authority to create a mortgage and obtain a loan in favour of himself solely.

55.  I do not believe the Wealth Lee case adds very much in terms of the construction point.  Ultimately, the question before the Court is the construction of the POA in the present case.

56.  Having considered the arguments summarized above, I accept the construction at paragraph 40 above and find that:

(1)  The POA including in particular Clause 6 thereof, properly understood, did not entitle the Father to make the arrangements for and execute the Loan Agreement, the Mortgage and the Assignment of Rental as the Daughter’s attorney in the manner that he did – in particular, in seeking to obtain the benefit of the Loan for himself as co-borrower.

(2)  The Lender, having had the chance to review the POA (whether by its director Ms Candy Cheung and/or by its lawyers BC Chow), being well aware that the Father was a co-borrower to the Loan, ought to have been aware that the Father was acting outside his actual and/or apparent authority, and/or was in breach of his fiduciary duties, when he executed the Loan, the Mortgage and the Assignment of Rental on behalf of the Daughter. 

(3)  The key point in this regard is that the Father was a co-borrower on the Loan when he in fact had no entitlement to benefit from use of the Properties as the security; this is what rendered the arrangements outside the scope of the POA and Clause 6 in particular. 

57.  In coming to such a conclusion, I have taken into account the following points:

(1)  I accept the distinction drawn between the entitlement to the mortgage consideration and monies on the one hand, and the mode by which such funds were to be paid (paragraph 43 above). 

(2)  The words “in my name solely or in the name of the Attorney solely” follow the particular act “to receive the consideration and the same or any of them payable to me”, and must be construed and restricted accordingly by reference to the phrase ending with “…payable to me”.

(3)  The purpose for which the authority is given “to receive the consideration and the same or any of them” is made clear by the phrase “payable to me”, and there was no intent to benefit the Father in the operation of this power or act.

(4)  Whilst the present case is distinguishable from the Wealth Lee situation (as above), it does not follow that Clause 6 in the present case must necessarily be construed in a manner which enables the donor of the POA to have entitlement to the mortgage funds.  The wording of the clause is wider than that in Wealth Lee, but one must still endeavour to understand and construe the phrase “to receive the consideration and the same or any of them payable to me” in the context of the present case.

(5)  I do not consider it necessary to take any particular stance on the other parts of the POA containing the plural pronouns. There is no ambiguity on the face of Clauses 6 and 7 themselves, and these are the clauses which govern the arrangements in this case.

(6)  The Lender’s point in paragraph 39 above that the option for payment to the Daughter or the Father was equal, and that there was no default position in favour of the Daughter does not, in my view, support its proposed construction. The situation might be different if, say, the phrase did not specify that the consideration should be paid to the Daughter (eg “to receive the consideration and the same or any of them payable to me in my name solely or in the name of the Attorney solely”), but that is not what the clause said.  The clause quite clearly indicated that the proceeds were to be payable to the Daughter, and thus for her benefit.

(7)  Any reliance sought to be placed by the Lender on various prior transactions entered into by the Father as attorney on behalf of the Daughter is neither here nor there.  The Glory Sky mortgages took place under a different power of attorney altogether, and the May loan arrangements took place under the subject POA.  This latter point brings the analysis back to the effect and scope of the POA, which does not entitle the Father to benefit for himself from the Properties.

58.  In the circumstances, the Daughter’s defence and counterclaim succeed on this basis alone.  It is strictly not necessary to consider her fourth defence regarding the operation of S 18 of the MLO, but I shall do so for the sake of completeness in Section F below.

E.      THE FATHER’S DEFENCE

59.  The Father’s defence, in essence, was that he did not know what he signed and/or that he did not know he was being asked to mortgage the Properties in order to obtain the Loan (paragraphs 32 and 33 above).

60.  He was not legally represented.  At trial, whilst he did not make opening or closing submissions, he elected to give evidence and be cross-examined (after the implications for and against such choice had been explained to him). 

61.  In relation to this particular issue, his evidence was that:

(1)  He had been managing the Properties on behalf of his Daughter since around 2007, and had handled matters such as rental and the like since that time.

(2)  He had had cash flow problems in 2015, and went to a middleman, a Mr Alan Wong (who was not called to give evidence), who arranged for him to obtain financing.  This Mr Wong, after having reviewed the POA, told him that he could use the POA to borrow money.

(3)  He attended at the offices of BC Chow in May 2015.  He was instructed to sign a loan document by a Mr Cheung Ching-ping for the amount of HK$5,100,000.  He received the cheque for the said loan, net of expenses.

(4)  He signed a number of post-dated cheques for the interest payments, which were handed to the solicitor.  None of the documents which he signed were explained to him.  As he says he didn’t understand English, he did not understand the contents and just signed as instructed.

(5)  He attended again at the offices of BC Chow in October 2015 to sign the 2^nd SD.  Similarly, he says that he did not understand the contents and just signed as instructed.

(6)  He attended again at the offices of BC Chow on 9 November 2015 to sign a loan document for the sum of HK$5,700,000 (ie the subject Loan).  He also signed a number of post-dated cheques for the interest payments, which were handed to the solicitor.  Similarly, he says that he did not understand the contents and just signed as instructed.  He accepted, however, that this sum was used to pay off the May loan, and the net proceeds were given to him.

(7)  He says he does not recall the circumstances under which the Mortgage and Assignment of Rental were signed. 

(8)  He did not tell his Daughter throughout that he was using the POA (and also the prior general power of attorney) to obtain financing for himself via the Glory Sky Mortgages, the May loan, and the Subject Loan. 

(9)  Under cross-examination he also admitted that he had borrowed other sums from two finance companies called Zhong Bo (中寶) and Sky Credit (樂天) by mortgaging another flat.

62.  Put shortly, I disbelieved the Father’s evidence insofar as his case turned on his alleged inability to understand English and/or the nature and effect of the documents which he had signed:

(1)  On his own admission, the Father was a businessman.  From about 2007 onwards, he was the director and sole shareholder of manufacturing company called Enrich Adhesive Paper Tape Manufactory Limited at Kwai Chung and another company called Yiu Wing (耀佳) which held three to four factory premises in Hong Kong.

(2)  Whilst in his witness statement and pleaded case he professed not to know the nature and purpose of the subject Loan Agreement and Mortgage, he demonstrated in cross examination that he understood perfectly well what these documents were and the intended effect of each of them. 

(3)  It was clear from the history of the matter (with which he was well versed) that he knew what loan arrangements entailed and what kind of liabilities would be incurred in order to obtain the financing. He had engaged in numerous rounds of such borrowing previously (the Glory Sky mortgages being an example of such; there were others in addition to this).

(4)  Whilst he professed that he did not understand English, during the cross-examination process (conducted in Punti), he rarely relied on the interpreter to interpret documents and/or his own evidence placed before him (which were primarily documents in English).  When questioned on this, he said he understood some English.

(5)  I find that he knew full well what the arrangements entailed.  In particular, he knew that he was liable and would be held to the terms of the Loan Agreement.

63.  In coming to the above conclusions, I have also borne in mind the trite principle that parties of full age and ordinary understanding will be held to documents which they have chosen to sign unless there is a recognised legal basis for concluding that their apparent consent has been vitiated; or that reliance on that document by some other person falls within some category of unconscionable conduct justifying relief in equity (Ming Shiu Chung & Ors v Ming Shiu Shum & Ors [2006] 2 HKLRD 831 AT 855J-856I). The Father has failed to demonstrate any such basis. In the premises, the Father’s defence and counterclaim fail.  I find him liable to repay the outstanding amounts on the Loan per the terms of the Loan Agreement.

F.S 18 OF THE MLO

64.  As I have found that the Daughter’s first three defences succeed (Section D above), it is strictly not necessary to consider S 18 of the MLO.  However, in the event that I am wrong on the construction of the POA and the implications thereof, I discuss below the factors relevant to S 18, MLO and what I would have found had it been necessary to do so.  What follows, therefore, is obiter dicta.

F1.    RELEVANT LEGAL PRINCIPLES

65.  S 18 of the MLO provides as follows:

“(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

…

(3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.” (emphasis added)

66.  On the facts, it cannot be seriously disputed by the Lender that all the relevant documentation was not physically signed personally by the Daughter, and that it was not given to her at the time of signing (paragraph 23 above).

67.  As a matter of law, there is a short point to consider – viz, whether the signature of a donee of a power of attorney (the Father) could be equated with and taken as that of the borrower “signing personally”, and that the giving of the loan documentation to the Attorney was equivalent to giving the same to the donor (the Daughter):

(1)  Whilst Mr Siu did not entirely concede the point, he acknowledged that there was no authority to support such a proposition.

(2)  Ms Ho relied on Emperor Finance Ltd v La Belle Fashions Ltd (2003) 6 HKCFAR 402, where the CFA held that “signed personally” excludes signature by an agent (at §77).  That case did not concern a power of attorney situation, but instead concerned the issue of whether S 18 of the MLO applied in situations where a loan was made to a company.  The ratio of the case is that an agent cannot “sign personally” for a company, but a natural person qualifying as the company’s “directing will and mind” could sign as the corporation itself.  (See also John W Grahame (English Financiers) Ltd v Ingram & Ors [1955] 1 WLR 563 at 565-566).

(3)  The power of attorney relationship is ultimately one of principal and agent.  The situation is not comparable to the “directing will and mind” of a company.  In the premises, I consider that the reasoning in Emperor Finance at §77 applies to the present case.

68.  It follows that the S 18(1), MLO requirements are not met, and if the Lender wishes to enforce against the Daughter, it would need to pray in aid of the Court’s discretion under S 18(3), MLO.  The burden falls on the Lender to persuade the Court that the discretion should be so exercised (Fast Billion Holdings Ltd v Sun Pui Yuk [2019] 2 HKLRD 906 at §26).

69.  The principles on the exercise of discretion under S 18(3) of the MLO have been summarized by Deputy High Court Judge To in Fast Billion at §§24-27, and I gratefully adopt the same:

“24. Section 18(3) gives the court a very wide spectrum of discretion. It ranges from annulling the loan agreement in one end to enforcing the agreement in its entirety in the other if it would be inequitable not to enforce the agreement. In between the two ends of the spectrum, the court has discretion to re-write the loan agreement in such terms as the court considers equitable. For the purpose of doing justice between the parties,the court may enforce the loan agreement on such terms as it thinks equitable. The primary test is whether it would be inequitable not to enforce the agreement and what part of the agreement would be equitable to enforce.

25. I think in exercising its discretion under section 18(3), the court should adopt a two stage process. It should first consider whether it would be inequitable not to enforce the loan agreement or security. If it would be inequitable not to, then it should next consider to what extent, and subject to what modifications or exceptions, it would be equitable to enforce the loan agreement or the security. For the purpose of the first stage of the process, the following factors are relevant:

(1) whether there is any vitiating conduct on the part of the money lender in the making of the loan agreement and in its enforcement; such conduct includes any oppression, coercion or inducement in the making of the loan agreement which is short of that required to avoid the agreement; and any objectionable features, such as the status of the parties, terms and conditions prejudicial to the borrower, and the money lender’s conduct in in enforcing the agreement;

(2) the nature and consequence of and to a lesser degree the reason for the breach: whether it was a deliberate breach committed for the purpose of circumventing the Ordinance or an inadvertent, technical or innocent breach; and

(3) whether there were any attempts by the moneylender during the course of the contract to make use of some objectionable features of the loan agreement.

…

26. … If the parties freely and voluntarily entered into a loan agreement with full knowledge of its terms and conditions, including the high interest rate, there is no reason why he should not be held to the contract merely because there was an inadvertent breach of section 18(1) committed by the money lender. It is not open to him to argue that by reason of the high interest rate or his own impecuniosity or other personal circumstances, he should be released of his liability under the loan agreement. I am not aware of any common law principle which would allow a party to be discharged from his obligations under a contract on that basis. If the legislature has allowed the existence of such loan agreements, there is also no public policy reason not to allow the agreement to be enforced and thereby occasioning loss to the money lender for an inadvertent breach. Under the circumstances, it would be inequitable not to enforce the loan agreement.

27. If it would be inequitable not to enforce the loan agreement, the next stage is to consider to what extent and subject to what modifications or exceptions the loan agreement should be enforced. At this stage of the consideration, the court should focus on the prejudice occasioned to the borrower as a result of the breach and the equities as between the parties and in relation to the regulatory purposes of the Ordinance as a whole. The following factors are relevant:

(1) the prejudice occasioned by the borrower as a result of the breach;

(2) the equities as between the parties, including the interest rate, the interest paid and the amount of outstanding principal; and

(3) of lesser importance and depending on the individual case,the way in which the default arose, the implications for the borrower and the attitude of the lender and the general appearance of the contract throughout.

If prejudice is suffered by the borrower, the discretion should be exercised in such a way as to restore the borrower to the position he would be in had there been no breach.  The court has wide discretion in ordering enforcement subject to such modifications and exceptions as is equitable in the circumstances after taking into account the equities as between the parties.  If no prejudice is suffered, the breach was immaterial.  The loan agreement should be allowed to be enforced substantially in accordance with its terms, subject, perhaps, to some minor modifications or exceptions to reflect the court’s disapproval for the money lender’s breach.”

(See also Brother’s Co v Ah Puk Transportation [1986] HKLR 821 at 825; CA Pacific Finance Ltd v Tsui Yun Bun Barry, HCA 632/2005, unreported judgment dated 20 July 2009 at §29; Cheung Chow v Cheung Ng Sheong Steven, CACV 119/1993, unreported decision dated 24 November 1993 at §4).

70.  Whilst the parties cited a large number of cases demonstrating specific instances of the exercise of the discretion, each case ultimately turns on its own facts.  The Court takes into account all the relevant circumstances of each particular case in considering whether a situation is inequitable or not, as the case may be.  Counsel on both sides have diligently gone through the relevant cases, and sought to draw various propositions from the same.  In coming to the conclusions below, I have had regard to these cases but do not consider it necessary to go through an exhaustive recital of each authority.

71.  However, I do wish to discuss the case law concerning the specific situation insofar as powers of attorney are concerned. Somewhat surprisingly, there is limited authority in Hong Kong surrounding this issue – namely, situations in which donees of powers of attorney have utilized the same to mortgage a property, and which the lenders / mortgagees then seek to rely on S 18(3), MLO.  The parties were agreed that there are only two such cases that they could locate.

72.  The first of these is九龍建業財務有限公司對 鍾喜文, HCA 7/2008, unreported judgment dated 8 July 2011. 

(1)  In that case, it was the lender’s case that the 1^st defendant (“Zhong”) had entered into arrangements to borrow money from a money lender via his attorney, the 2^nd Defendant, on the strength of a power of attorney.  A notable feature of the case is that Zhong did not appear at trial to defend the case, whilst the 2^nd Defendant did not defend the case at all (§§2-5).  In the circumstances, there was no evidence tendered in support of the defence.

(2)  Whilst Zhong’s pleaded case was that the power of attorney was forged, this was rejected by the judge.  The judge then went on to consider the criteria for the exercise of discretion under S 18(3), MLO (as the lender was accepted that Zhong had not signed the relevant documentation personally and it was in breach of S 18(1), MLO).  Having come to the conclusion that Zhong’s defence of forgery had failed, the judge went on to find that he had not suffered any prejudice as a result of the lender’s failure to comply with S 18(1), MLO (§§21 to 25). 

(3)  It was in those particular circumstances that the lender persuaded the trial judge to exercise her S 18(3), MLO discretion in its favour.  I do not consider the case to be of assistance given these specific circumstances summarized above. 

73.  The second case is Wealth Lee Finance Limited v Ng Fun Lung & Anor [2019] HKDC 68, which I have already briefly mentioned above (at §§53-54).

(1)  In that case, the attorney (the son) entered into a loan agreement for his own benefit, with the son and the donor (the mother) charging properties (jointly owned by the son and the mother) in favour of the lender as security.  The cheques for the loan were issued in his name only.  The son was party to the loan agreement, but the mother was not.  As the son had disappeared and did not defend the case against him, the trial concerned only the mother. 

(2)  At issue in the trial was inter alia: (i) whether the son had validly executed the legal charge as the mother’s attorney by relying on the power of attorney and (ii) whether the legal charge was unenforceable if there was a breach of S 18(1), MLO (ie whether the discretion in S 18(3) would be exercised).  There were other issues, but for the purposes of the present case these are the pertinent ones.

(3)  The wording of the relevant clause in the power of attorney has been set out in §53 above.  The Court held that the son did not have authority to execute the legal charge as the mother’s attorney in the way that he did, and that the lender ought to have been well aware that he was acting outside the scope of his authority (since the clause specified that the consideration was to be made payable to the donor’s name only, and also spelt out the entitlement). 

(4)  On the issue of S 18, MLO, the Court declined to exercise its discretion to relieve the lender for the breaches of S 18(1), MLO. The crux of the reasoning is found in §95 of the decision:

“95. In the present case, the general appearance of the contract throughout was such that the Lender was only concerned with earning the interest under the Loan Agreement, and that the loan amount as well as the interest would be covered by the value of the Two Properties should there be default. Further, the Lender clearly knew, or should have known that the Son was acting outside his authority under the POA when he executed the Legal Charge on the Mother’s behalf (as the cheques were only issued in the Son’s sole name). Yet no steps were taken to ask the Mother to properly authorize the Son in the circumstances. The relative status of the parties were such that the Mother was clearly at a disadvantaged position, being an illiterate and unsophisticated elderly woman who was manipulated by her son. There was no evidence to show that the Mother benefitted from the Loan. The Lender has already obtained judgment against the Son and can seek enforcement of the Son’s half shares in the Two Properties.”

F2.    THE EVIDENCE

74.  The bulk of the cross-examination during trial centered on issues relating to the exercise of discretion.

75.  The Daughter’s case was, in essence, that:

(1)  The Lender had failed to notify her or seek her consent before entering into the Loan Agreement or the Mortgage.

(2)  The breaches were recurrent (viz the May loan and the subject Loan) and egregious.

(3)  The Daughter had no knowledge of the Loan, the terms of the Loan Agreement or the Mortgage, the identity of the Lender and/or the Lender’s business, until she was informed of the same in March 2016 (after she requested the Father to sell the Properties).

(4)  All the loan proceeds were given by the Lender to the Father.  The Daughter had not benefitted from the same.

(5)  If the Loan Agreement and Mortgage were to be enforced against her, it would be tantamount to holding her liable for a debt which she did not willingly enter into nor benefit from.

On the basis of the above, the Daughter’s position was that it would be inequitable to allow the Lender to enforce the Loan Agreement, the Mortgage and the Assignment of Rental against her.

76.  The Lender sought to test or challenge the above points by reference to the evidence of its own witnesses and also by seeking to challenge the credibility of the Daughter and the Father insofar as their version of events was concerned.  On this latter aspect, one of the main lines of questioning by Mr Siu centered on whether the Daughter was, as she professed, truly unaware of the Loan and the arrangements surrounding the same.

77.  The Court heard from the following witnesses:

(1)  Ms Cheung Yuk Chun (“Candy Cheung”), the director of the Lender who dealt with the Father for the May loan and the subject Loan arrangements.

(2)  Mr Cheung Ching Ping Nelson (“Nelson Cheung”), the lawyer at BC Chow which acted for the Lender in the May and subject transactions.

(3)  The Daughter; and

(4)  The Father.

78.  The salient points of the evidence are summarized below.

Candy Cheung

79.  Candy Cheung gave evidence as follows:

(1)  She had been working for the Lender for about 20 years.  Transactions involving powers of attorney were not the norm, and there were approximately three or four such cases where the attorney borrowed money by utilizing a power of attorney to sign the relevant documentation.  She accepted that given the rarity of the situation, it was important to ascertain whether the donor truly authorized the transaction and agreed to enter into the same.

(2)  She relied on the Lender’s solicitors, BC Chow, to see whether there was anything wrong or suspicious about the power of attorney.

(3)  The Lender would not have lent the Loan without the security of the Properties being in place.  They looked to and trusted the security of the same, rather than assessing the individual borrowers per se.

(4)  As far as she understood, the POA was effective in granting power to the Father to act for and on behalf of the Daughter in borrowing money and charging the Properties. 

(5)  It was the practice of the Lender to join the Attorney as co-borrower, such that they could have another avenue or person to pursue and enforce against in the event of default on repayment.  She also said that it was essential that the Daughter was made a borrower, otherwise the Lender would not have granted the Loan or entered into the associated arrangements. 

(6)  In making the arrangements for the loans, she dealt with the Father.  The Father had never informed her of the reasons for the May loan or the subject Loan.

(7)  She prevaricated somewhat on whether the Father was the customer or whether both he and the Daughter were.  However, what is clear is that the credit worthiness documents sought were all for the Father and not the Daughter’s information (save in respect of the Properties), and that the cheques for repayment were from the Father and not the Daughter (as above, in the Background section).

(8)  She did not see the point in attempting to call the Daughter or speaking to her, as she would not be able to verify if the person on the phone was actually the Daughter in any event.  She just trusted the POA.  She only heard from a person claiming to be the Daughter after there had been a default in repayment.

(9)  The Lender understood that it was regulated by the MLO and that it needed to comply with the same.  It engaged the services of BC Chow in order to ensure it had complied with the MLO.

(10)  All documents were signed by the Father.  All two copies of the relevant loan agreements were given to the Father.  She did not know if the Father then gave one copy to the Daughter.  No copies of the Mortgage or the Assignment of rental were given to the Father or the Daughter.

(11)  She did not see the need to query the reasons why the 1^st SD had need to be executed.  She accepted the 1^st SD on face value that the title deeds had been lost.  She didn’t know the reason why the Father did not go back to the original solicitors’ firm (not BC Chow) which had prepared the 1^st SD in order to prepare the 2^nd SD.  She did not query the same.

Nelson Cheung

80.  Nelson Cheung gave evidence as follows:

(1)  He is a partner of BC Chow and was the legal adviser of the Lender in relation to the arrangements for the May loan and the subject Loan.

(2)  He was familiar with powers of attorney.  Whilst for the Lender’s business, such transactions were relatively rare, there were other cases where his firm had assisted parties in arranging loans taken out on the strength of a power of attorney.

(3)  The Lender would only advance loans where such loans could be secured by a property charged and mortgaged.

(4)  He did not see the point in attempting to call the Daughter or speaking to her, as he would not be able to verify if the person on the phone was actually the Daughter in any event.  He instead relied on the firm that had prepared and witnessed the execution of the POA to ascertain the donor’s identity.

(5)  The Father had not informed him of the reasons for the May loan or the subject Loan.  He realised from the documents provided by the Father that he owned a business.

(6)  He had explained the material terms of the loan and mortgage documentation (both for the May loan and the subject Loan) to the Father in Punti.  He had also required the Father to sign the warning notices and confirmation letters (set out in the Background section above) before proceeding with the transactions.

(7)  He had never met or dealt with the Daughter when making the arrangements for the loans. 

(8)  He relied on the terms of the POA and considered that it covered the subject transaction. 

(9)  He disagreed that he had not complied with the Law Society’s Circular and Guidance Notes on the subject of undue influence in property transactions.

(10)  For the purposes of S 18, MLO, he equated the Father as the Daughter on the basis of the POA.

(11)  He did not know if the Father gave the copy of the relevant loan agreements to the Daughter.  No copies of the Mortgage or the Assignment of rental were given to the Father or the Daughter.

(12)  Candy Cheung told him the Father was the customer.

The Daughter

81.  The Daughter gave evidence as follows:

(1)  She was born in 1982.  She had migrated to Australia in 1996 and studied there afterwards.  She had a bachelor’s degree in Education and English Literature from a university in Australia.  She also had a master’s degree in sociology from a university in the UK.  She works as a teacher in Australia.

(2)  Whilst she and her mother lived in Australia, her Father stayed in Hong Kong.  Her parents eventually divorced, the Father remarried and had another child.  However, she maintained an essentially good relationship with him, and would chat with him weekly over the phone about general chitchat and affairs.  She did not ask him about his business affairs or his finances. 

(3)  She had asked the Father to assist as her attorney in her investment in Hong Kong property as she needed somebody locally to help her do so.  She did so because she trusted him.  She acknowledged that the appointment of her Father as attorney enabled her to conduct her affairs more efficiently, saving her time, cost and trouble.

(4)  She acknowledged that powers of attorney (both the general power of attorney and the subject POA) were formal documents, that the attorney could use the same to deal with third parties, and that third parties would rely on the same without consulting her further. 

(5)  She said that she had gone to the offices of Messrs K L Leung & Co (“KL Leung”) in October of 2012 in order to sign the subject POA.  At the time, the POA was undated (and not activated).  She said that this was the first and only occasion on which she met a Mr Yum Wai Keung (“Yum”) face to face; he was a clerk who worked at KL Leung.  She said that he explained the contents of the subject POA to her and that he had told her that her interests were protected because the POA was more limited in scope than a general power of attorney.  She said that this meeting took place for about 3 hours, and that she believed Yum was legally trained and supervised by the law firm.  (Much time was spent in cross-examination on this aspect of the evidence, as well as the Daughter’s own understanding of the scope and effect of the POA.  I address this in further detail below).

(6)  She confirmed that she was able to read and understand the terms of the POA.  She accepted that if she was not satisfied with the terms thereof, she could have deleted or crossed out the same, or that she could have refused to sign.

(7)  She acknowledged that she did not tell the Father not to mortgage the Properties.  She said that he ought not to do this “morally”.

(8)  On or about 5 January 2015, after a call from her father, she instructed KL Leung to activate the POA on 13 January 2015. 

(9)  Shortly thereafter, she discovered the existence of the Glory Sky mortgages as an estate agent had told her about the same.  She says she called the estate agent in order to make inquiries about possibly selling the Properties.  It was then that this agent informed her about the existence of the said mortgages from her search record.  She was shocked and angry about this and confronted her Father, who promised to handle the matter and repay immediately.  (As per §11 above, these were discharged in January 2015). 

(10)  She said that when she discovered the Glory Sky situation, she immediately contacted Yum, who told her that the POA was “very safe” and that it limited the scope of authority granted to the Father, and that he could not misuse the POA in mortgaging or charging the Properties.  She said that she trusted Yum and that she did not think it necessary at the time to seek a further opinion.

(11)  Under extensive cross examination, she vehemently and repeatedly denied that she knew, in January 2015, that the Father was in financial difficulties.  She only found out about his other borrowings from a number of other financial institutions after her mother’s friend in Hong Kong told her that her father had been prosecuted in criminal proceedings and had been reported about in the press.

(12)  She only learned about the May loan and the Subject loan in March 2016 when she planned to sell the Mortgaged Properties and asked the Father to network with some property agents to help her understand the Hong Kong properties market at the time.  She instructed lawyers to revoke the POA on 11 April 2016.

(13)  When queried as to why it took her 15 months to revoke the POA (ie from January 2015 to April 2016), she said that she needed someone to manage the Properties on her behalf, she believed that the Glory Sky issue had been dealt with by her Father and he had promised not to do the same thing again, and that she trusted Yum who told her that the POA was very safe.

(14)  She acknowledged that she had lodged a complaint with the police against the Lender regarding its breaches of the MLO.  She says that she did not coordinate such complaint with the Father. 

(15)  She did not sue her Father because in some sense, she considered that her Father had also been exploited.

(16)  She had not complained against Yum or KL Leung, whether to the Law Society or by way of legal action.

(17)  She had a falling out with her Father after the above-mentioned events, but even then, she still spoke to him about once a week over the phone.

82.  The Father gave evidence as follows:

(1)  He first acted as attorney for his Daughter in about 2007 when the Properties were purchased. 

(2)  He had not told his Daughter about the May loan, the subject Loan, or indeed any of the other loans (including the Glory Sky loans).  He had borrowed the same for his own use.  He did not want to tell his Daughter because it was embarrassing.

(3)  He accepted that he was in dire financial difficulties since December 2014.  He says he did not tell his Daughter about this. 

(4)  He came to know Yum of KL Leung after he had borrowed money from Glory Sky in 2014.

(5)  He had introduced the Daughter to a solicitor of KL Leung in about October 2012.  He did not attend with her when she went up to meet Yum on that occasion.

(6)  He said that the Daughter’s plans to sell the Properties in 2015 had nothing to do with his financial difficulties.

(7)  He said that he paid off the Glory Sky loans (in the sum of HK$3,010,356) using money from customers who had paid him the price of goods in about January 2015.  He was unable to provide proof of the flow of funds.

(8)  He said he was not sure whether Nelson Cheung had explained the May loan and the subject Loan documents to him.  He confirmed that the signatures on the documents were all his.

(9)  He acknowledged that she had lodged a complaint with the police against the Lender regarding its breaches of the MLO.  He says that he did not coordinate such complaint with the Daughter.

F3.    DISCUSSION

Approach to Assessing the Evidence

83.  In assessing the credibility and reliability of the evidence given by the parties:

(1)  I have had regard to the inherent probabilities of their respective cases, and the internal consistency of their evidence and their demeanor when testifying at trial.  I have also had regard to the contemporaneous documents, circumstantial evidence tending to support one account rather than the other, and the overall impression of the character / motivation of the witnesses (Re B (Children) [2009] 1 AC 1).

(2)  I have borne in mind not only the witnesses’ demeanor in court, but also the history of events, and the contemporaneous documents and the inherent probabilities of the witnesses’ accounts (Esquire (Electronics) Ltd v The Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at 494C).

Did the Daughter Know about the Loan Arrangements?

84.  Mr Siu invites the Court to disbelieve the Daughter’s and the Father’s evidence insofar as they both say the Daughter was unaware of the Loan and the associated arrangements.  Whilst the Lender does not have a positive case pleaded as such, Mr Siu’s submission is that he is entitled to test the Defendants’ case and story in this respect.  I accept that, to such extent, this approach is permissible and have assessed the parties’ evidence with this in mind.

85.  Mr Siu points to inconsistencies in the Father’s and Daughter’s version of events, and statements which it is said were incredible.  These were extensively covered in written and oral closing submissions, the key points of which are summarized below.

86.  There was, as the Daughter herself admitted, some confusion as to when the POA was actually signed.  She had originally said in earlier affirmation evidence that it was signed in October 2014, whereas she later corrected this to October 2012 in her witness statement.  Her explanation was that she had been confused as to the timeline earlier, and the discovery of further documents subsequent to the signing of the affirmation had triggered her memory regarding the October 2012 date.

87.  It was unclear as to when the Father himself had met Yum.  The Daughter said she met him in 2012.  The Father said she only met him in 2014, and that in 2012, he had introduced the Daughter to a solicitor of KL Leung.

88.  The Daughter had said under cross examination that she was prepared to sue the Father if he did not repay the Glory Sky loans, and that she had a fallback plan to do so (by instructing a lawyer to prepare documents).  She only withheld such action because he arranged repayment promptly.  Essentially, Mr Siu suggests that her answers with respect to this line of cross-examination were made up to show that she had drawn a line in the sand with her Father.

89.  The thrust and intimation during the cross-examination was to suggest to the Daughter that she was in fact aware of her Father’s financial difficulties and that she had coordinated with him in obtaining inter alia the subject Loan.

(1)  Mr Siu pointed to the 15-month period between January 2015 and April 2016 wherein the POA remained effective.  It was, he submits, unreasonable for the Daughter to have kept such POA in place when, on her version of events, the Father had betrayed her trust in taking out the Glory Sky mortgages behind her back. 

(2)  As part of this line of questioning, it was effectively suggested to the Daughter that her “shifting the blame” to Yum and her professed trust in his advice was unreasonable in the circumstances. 

(3)  The implication of the above, says the Lender, is that the Daughter’s case that she did not know about the May loan and the subject Loan are to be disbelieved.

90.  Notwithstanding the matters discussed at §§84-89 above, and having weighed the evidence and submissions on this issue, I accept the Daughter’s evidence that she had no knowledge of the May loan and the subject Loan until March 2016:

(1)  This is consistent with Ms Candy Cheung’s evidence was that the first she heard from someone professing to be the Daughter was in March 2016.

(2)  Whilst I did not find the Father a credible witness insofar as he professed a lack of understanding of English and the loan documents, I accept his evidence that he was embarrassed and did not wish to tell his Daughter about his financial troubles.

(3)  I find the Daughter to be a credible witness generally.  Her reasons for keeping the Father as her attorney in spite of the Glory Sky episode are rational, insofar as a daughter with good relations generally (prior to this incident) would continue to trust her Father. 

(4)  In this regard, despite Mr Siu’s commendable efforts to query why the Daughter would place so much trust on Yum during this time period, I do not consider this to be a point which would cause me to disbelieve the Daughter’s account:

(a)  Mr Yum was the representative sent by the law firm to explain the contents of the POA to her.  Her evidence was that he had done so at a lengthy 3-hour meeting in October 2012, and she had no reason to doubt his explanations.   

(b)  Her evidence was that Yum told her that Clause 6 meant that the Lender was required to advance the loan monies to the 1^st Defendant in her sole name and it is only if that was impracticable for some other reasons, that the monies would be paid to the Father as attorney.  Whilst she was challenged that this was not mentioned in her witness statement, it was not inconsistent and was essentially elaborated on what was explained to her by Yum.

(c)  It would not be unreasonable for her to go back to KL Leung / Yum to ask about the effect of the POA in January 2015.  The fact that she had not sought a second opinion at the time is not unreasonable given this was the firm that prepared the POA.

(d)  Whilst Yum had prepared an affirmation on 18 August 2016 speaking to what he understood the POA to mean, he was not called as a witness.  When questioned on this, the Daughter said her solicitors had attempted to contact Yum to give evidence but failed to do so.  During closing submissions, a Law Society Circular was handed up showing KL Leung has ceased to practice on 27 August 2016.

(e)  On balance, whilst one might find the heavy reliance placed on Yum to be odd (perhaps more so with the benefit of hindsight), this feature does not tip the scales to the extent that I would disbelieve the Daughter’s version of events.

(5)  I also accept that the confusion between the October 2012 and October 2014 dates was an innocent mistake.

The Exercise of the s18(3) Discretion

91.  It is necessary to weigh this factor (ie the Daughter’s lack of knowledge of the loan arrangements) together with the other features and circumstances of the case in exercising the S 18(3) discretion.

92.  For the reasons set out below, I decline to exercise the discretion in the Lender’s favour.

93.  The Lender’s breaches of the MLO were substantial and significant, rather than mere technicalities.  The loans were extended in spite of the fact that there were a number of notable features of the case which should have alerted the Lender (whether Ms Cheung or Mr Cheung) of the need to ascertain the situation with the Daughter:

(1)  The loans were granted on more than one occasion and the breaches occurred on more than one occasion – viz the May loan arrangements and then the subject transaction.

(2)  On each occasion, the Lender’s approach and attitude was that it would look to the Properties as the decisive reason and basis for extending the loans.  Its attitude was to ensure recoverability by joining the Daughter and Father as co-borrowers, in addition to having the Properties as security.

(3)  Whilst Ms Candy Cheung said that both the Daughter and the Father were customers (and it could be seen from at least some of the contemporaneous documentation that both were identified as such), there is no denying that Ms Cheung dealt exclusively with the Father, and only his credit worthiness documents had been sought.  All of the money was advanced in the Father’s name.  All of the repayment cheques signed in advance were signed by the Father and from his account.

(4)  Ms Cheung herself acknowledged that the Lender did not often extend loans on the strength of powers of attorney.  And yet, despite the apparent rarity of this situation, it does not appear that any particular care was taken in dealing with this facet of the transaction.  It was simply a case of going through the motions and ticking all the boxes, with the Lender relying on the POA as the document that enabled them to extend the loan and obtain the security of the Properties. This included inter alia preparation of the 2^nd SD by BC Chow. No questions were raised on why the title deeds had been lost despite the Dah Sing mortgage having been discharged only recently, in March 2015.

(5)  As is apparent from the summary of the evidence above, there was never any attempt to contact the Daughter.  The somewhat rehearsed answer by both Ms Cheung and Mr Cheung that they did not do so because they would not be able to verify if the person on the phone was actually the Daughter in any event rings hollow.  In this day and age, there are numerous ways and means to check if someone on the other end of a phone or video call is who they say they are.  The reality is that it didn’t even occur to the Lender to take this step of verifying with the Daughter whether she could sign personally or accept the documents.  They simply relied solely on the POA.

94.  In addition to the matters above, the Daughter points to BC Chow’s failure to follow the Law Society Guidelines which are aimed at assisting solicitors to fulfil their professional obligations in the conduct of 3-party security transactions, which are susceptible to claims of “undue influence”:

(1)  In her closing submissions, Ms Ho points to the fact that the case involves a relationship between a surety (the Daughter) and the borrower (the Father) which is non-commercial.  The Guidelines set out various steps and procedures which must be taken in order to ensure that the rights of the surety are safeguarded.

(2)  It cannot be reasonably disputed that BC Chow must have known that the Guidelines applied.  Otherwise, they would not have required the Father to sign the Warning Notice. 

(3)  Mr Cheung prevaricated on whether he was acting for the Lender alone or all parties.  Regardless, it is clear that certain aspects of the Guidelines were not followed (most notably, Mr Cheung never met the Daughter face-to-face to advise her that she had a choice to proceed with the transaction and to ascertain whether she wished to proceed).

(4)  The answer, at every turn, was that the POA covered the transaction.

(5)  The above is again indicative of the approach and attitude towards the transactions – namely, that it was simply a case of going through the motions and ticking all the boxes, with the Lender relying on the POA as the document that enabled them to extend the loan and obtain the security of the Properties.

95.  In respect of the failure to contact the Daughter and the breaches in relation thereto I accept, however, that this likely arose out of a misplaced understanding of the POA’s effect and the way in which it would be sufficient to cover S 18 requirements:

(1)  Ms Cheung’s evidence was that she relied on BC Chow to assess the POA and the implications thereof. 

(2)  Mr Cheung’s evidence was that he considered the POA to be effective and sufficiently wide in scope to cover the transactions (ie that this covered the obligations in S 18(1), MLO).

(3)  To such extent, one might say that the breach was not entirely intentional or contumelious.  However, it nonetheless represents a rather reckless approach to the S 18, MLO requirements and a lack of intentionality in ensuring that the borrowers were fully informed and aware of the obligations which they were entering into.

(4)  Considering the present situation and contrasting this with eg the situation in Wealth Lee, the “fault” on the part of the Lender is somewhat less insofar as it should have been more obvious to the lender in Wealth Lee that the payment of the cheque to the son in that case quite clearly contravened the terms of the clause in the power of attorney.

96.  I have also considered the Lender’s countervailing submissions on all of the above.  I note in particular the following:

(1)  It suggests that the POA amounted to a “formal representation” by the Daughter that the Father could mortgage the Properties, and that the Daughter is estopped from denying this formal representation.  I do not consider this is a proper point that can be taken – regardless of the POA, the reality is that the breaches went to the heart of the transactions and the Lender ought not to have simply gone through the motions as it did in this case.  There is, further, no pleaded case of estoppel by the Lender.

(2)  The Loan was actually advanced and there has been default in repayment.  I accept that this is the case.  But the Lender has recourse to the Father, who it dealt with all along and who it knew and agreed would be a co-borrower in the first place.

(3)  The Lender points to the doubtful story by the Daughter that she did not know about the Father’s actions in taking out the loans, suggesting that she did, in fact know he was taking out the Loans.  As I have accepted the Daughter’s evidence in this regard, this is not a point that I would weigh into the mix.

(4)  I have accepted at §95 above that the breaches were not entirely contumelious.

(5)  In his oral closing submissions, there was a suggestion that owing to the POA arrangement, the attorney’s knowledge of the loan arrangements should be “imputed” to the Daughter and that accordingly, the equities lie in favour of the Lender.  For the reasons already explored above, I do not agree.  In any event, the reality of the situation is that on the facts as I have found, the Lender was simply going through the motions and relying on the POA as a means of ticking all the boxes without applying its mind as to whether a named borrower and guarantor of the Loan was actually informed and consenting to the whole arrangement.  There is no (and ought not to be) any “imputation” of knowledge.

(6)  Complaint is made that it would be a “severe punishment” to the Lender if they are not allowed to enforce the Loan.  However, this is the outcome of S 18(1), MLO breaches.  This point is a non-starter.  I do not accept the submission that this “punishment” ought to be reserved for loan sharks or those lenders who charge excessive interest.  That is not what the MLO specifies and to restrict the operation of S 18 in such way would be wrong as a matter of law.

(7)  On balance, I find that the situation is more akin to that in Wealth Lee in terms of where the balance of the equities fall.

97.  On the basis of the above, I decline to exercise the S 18(3), MLO discretion in the Lender’s favour.

Miscellaneous Points

98.  In Mr Siu’s written closing, a point is raised that the Daughter has not pleaded any case of non est factum, prejudice or undue influence or duress.  I do not agree that the Daughter is raising those as defences per se.  The argument on the Law Society Guidelines centered around particular features of the case which should have alerted the Lender to the need to contact the Daughter (as discussed above).  It was weighed as part of the basket of factors in exercising the S 18(3), MLO discretion.

99.  In the trial bundles and evidence, there was reference to certain criminal proceedings and a conviction against the Father. I have not taken those into account separately, save as a general background matter which might go to his credibility.  In any event and regardless of this factor, I would have come to the same conclusions set out above.

G.      CONCLUSION

100.  Accordingly, I find that the Lender’s case against the Father succeeds, but it fails against the Daughter.  The Daughter’s defence and counterclaim succeeds.

101.  In summary, I shall make the following Orders (subject to any submissions which parties may wish to make on the specific wording and form thereof):

(1)  The Lender’s claims against the Daughter are dismissed. 

(2)  There shall be declaratory relief that the Loan Agreement, the Mortgage and the Assignment of Rental are not enforceable as against the Daughter.

(3)  The Father shall pay to the Lender:

(a)  The principal due and owing in the sum of HK$5,700,000;

(b)  Outstanding interest for March 2016 (the due date being 9 March 2016) in the sum of HK$51,250;

(c)  Thereafter, interest at the rate of 15% per annum from 10 March 2016 until the date of judgment, being HK$71,250 per month;

(d)  Interest thereafter at judgment rate until all sums due and owing are fully paid off.

(4)  The Father’s counterclaim is dismissed.

(5)  As to costs, there shall be an order nisi as follows:

(a)  The Father shall pay the Lender’s costs of the action against him; and

(b)  The Lender shall pay the Daughter’s costs of the action against her, as well as the costs of her counterclaim

All such costs to be taxed if not agreed.

(6)  In relation to the costs of the Daughter to be borne by the Lender, I am presently not inclined to make a Sanderson Costs Order as invited by the Lender.  In so doing, I have taken into account the principles set out in Fung Chun Man v Hospital Authority & Anor [2012] 1 HKC 531 at §§5-7.  Given the findings I have made above regarding the equities of the case and the state of affairs as to the Lender’s approach in dealing with the loans, I do not consider it appropriate to make a Sanderson Costs Order.  There are plenty of cases, including a number cited by counsel on both sides in this case, where money lenders have elected to only pursue or proceed against one or other of the borrowers or sureties involved in loan arrangements.  It was not a given that the Lender had to proceed against both in this case.  Nor does this fall into the “classic scenario” described in Fung Man Chun where the unsuccessful defendant blames the successful one and causes the plaintiff to join or proceed against both.

102.  Parties are directed to file submissions on: (1) the final form of the orders to be made and (2) any further submissions on the costs order nisi above.  The Lender is to file submissions within 14 days of the date of this decision.  The Daughter and the Father are to file any submissions within 14 days thereafter.  The Lender shall have a final chance to respond within 7 days thereafter (and if each of the Father and Daughter file on separate dates, this 7-day period shall take effect in respect of each of their submissions separately).

103.  I thank all Counsel for their helpful assistance.