Dah Sing Bank, Ltd v. Golden Gear Ltd and Others

HCMP 469/2022

[2025] HKCFI 5583

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 469 OF 2022

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BETWEEN

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JUDGMENT

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A. Introduction and Background Facts

1.In these proceedings, first brought by way of Originating Summons dated 25 April 2022 (“OS”)[1] and later directed to proceed as if begun by Writ[2], the Plaintiff (“P”)  seeks payment of the following sums claimed to be due and owing to P from the Defendants (“Ds”)  under a mortgage and/or guarantee executed by them:

	EUR
Invoice Financing: Principal Outstanding Balance	881,686.21
Accrued Interest	25,022.27
Total:	EUR906,708.48

	HK$
Overdraft: Principal Outstanding Balance	1,269,266.82
Accrued Interest	30,286.97
Sub-Total:	1,299,553.79
Mortgage Loan: Principal Outstanding Balance	3,333,062.57
Accrued Interest	24,080.94
Sub-Total:	3,357,143.51
Total:	HK$4,656,697.30

2.P was and is a licensed bank registered under the Banking Ordinance, Cap. 155.[3]

3.The 2^nd Defendant (“D2”)  and the 3^rd Defendant (“D3”)  first met in 2003 at a trade exhibition in Hong Kong and shortly after, D2 hired D3 as her English translator and business assistant. [4]  They were married in December 2003.[5] They have a daughter, born in November 2004, and a son, born in August 2007.[6]

4.According to D2, since 2000, she carried on a clothing wholesale business in Shenzhen, assisted by her family members, whereby she would source designer brand clothing from Europe and sell them to retailers and consumers in the Mainland and Taiwan (“the Business”).  She had taught D3 how to do business and manage operations, took him to Europe to buy samples, and taught him to collaborate with the Shenzhen business to sell to the Mainland clients.[7]

5.The 1^st Defendant (“D1”)  was and is a company incorporated in Hong Kong on 23 August 2006.[8] At all material times, D2 was and is the sole shareholder.[9]  Up to February 2021, the corporate documents filed with the Companies Registry recorded that D2 and D3 were the only directors of D1.[10] 

6.深圳綽毅進出口有限公司was established in the PRC on 13 September 2006.  According to D2, it was set up by her for conducting the Business in the PRC.[11]

7.On 23 May 2013, D2 bought the subject property of these proceedings (“the Property”)  in her sole name with the assistance of a mortgage loan granted by the Bank of China (“BOC”).[12]  The Property is a residential one and D2 is currently in possession thereof.[13]

8.On 15 July 2015, the following documents were executed at D1’s office[14]:

(1)  P’s letter of banking facility dated 3 July 2015 (“2015 Facility Letter”)[15] signed by D2, on behalf of D1 and in her personal capacity, and by D3 in his personal capacity;

(2)  General Agreement for Commercial Business dated 15 July 2015 (“GACB”)  [16] signed by D2 on behalf of D1;

(3)  Guarantee and Indemnity dated 15 July 2015 (“the Guarantee”)[17] signed by D2 and D3;

(4)  Board Resolution (Company Borrower/Investor)  dated 15 July 2015 (“2015 Board Resolution”)[18] signed by D2 and D3 on behalf of D1; and

(5)  Mandate for Account of a Limited Company dated 15 July 2015 (“the Mandate”)  signed by D2 and D3[19] which was attached to the 2015 Board Resolution and referred therein.

D2 accepts all the above documents, except the Mandate, contained her genuine signature.[20]

9.A Mortgage dated 2 September 2015 (“the Mortgage”)[21] in respect of the Property was executed by D2 and D3 on behalf of D1 as the principal, and D2 as mortgagor.   The mortgage loan with BOC was discharged by the mortgage loan received from P under the 2015 Facility Letter and the Mortgage.[22]  D2 also accepts that the signature on the Mortgage is her genuine signature.[23]

10.Although, D2 does not allege her signatures on the 2015 Facility Letter, GACB, the 2015 Board Resolution and the Mortgage were forged, it is D1’s and D2’s pleaded case that they were signed by her under the undue influence exerted from D3 which P had actual and/or constructive knowledge of.[24]  However, in closing submissions, it was confirmed that D2 no longer maintains that she signed the Mortgage under the undue influence of D3, but only that she had not been fully explained the contents of the same.  

11.As already mentioned, in this action, P’s claim against Ds is based on the Mortgage and the Guarantee.

12.As for the Guarantee, it is the pleaded case of D1 and D2, that it was executed by D2 at the request of Carmen Lai (the then relationship manager of D1’s account with P[25])  without proper explanation as to its terms to D2.[26]

13.A Notification of Change of Signing Instructions dated 15 July 2016 (“2016 Notification”)[27] purportedly to change the signing instructions for operations of D1’s accounts with P to any one of the authorised signatories (being D2 and D3)  with effect from 22 July 2016 was signed by D2 on behalf of D1.  However, D2 says that her signature on the 2016 Notification was forged[28].

14.In 2016, D2 filed for divorce and a decree absolute was granted on 3 July 2017[29]. 

15.By P’s letter dated 5 September 2017 to D1 (“2017 Facility Letter”)[30], the banking facilities were revised.  The 2017 Facility Letter was purportedly signed by D2, for and on behalf of D1 and in her personal capacity, and by D3.[31] 

16.By P’s letter dated 31 July 2018 to D1 (“2018 Facility Letter”)  [32], the 2017 Facility Letter was amended.  The 2018 Facility Letter was purportedly signed by D3 in his personal capacity and on behalf of D1, and by D2.[33]

17.By P’s letter dated 6 September 2019 to D1 (“2019 Facility Letter”)[34], the banking facilities were revised.  The 2019 Facility Letter was purportedly signed by D3, in his personal capacity and on behalf of D1, and by D2.[35]

18.By P’s letter dated 3 November 2020 to D1 (“the 2020 Facility Letter”)  [36], the 2019 Facility Letter was amended.  The 2020 Facility Letter was purportedly signed by D3, in his personal capacity and on behalf of D1, and by D2.[37]

19.Whilst it is not disputed that the terms and conditions of the facilities granted by P to D1 as amended/varied by the 2017 Facility Letter, 2018 Facility Letter, 2019 Facility Letter and 2020 Facility Letter were more favourable to D1 in offering lower interest rates[38], it is D1 and D2’s pleaded case that they never accepted those terms and conditions.  D2 maintains that she never received or has seen those facility letters at the time and her signatures were forged by D3[39].

20.In the written closing submissions of D1 and D2[40], a table sets out the documents that D1 and D2 submitted contained the forged signatures of D2, and as a result D1 and D2 never authorised (collectively, the “Alleged Forged Documents”).  These are: the Mandate[41], 2016 Notification[42], 2017 Facility Letter[43], 2018 Facility Letter[44], 2019 Facility Letter[45], 2020 Facility Letter[46], the Certified Extracts of Board Resolutions dated 6 September 2017[47], 10 October 2019[48] and 11 December 2020[49].

21.According to D2, when her monthly salary of HK$60,000 was not paid in June 2021, she returned immediately to Hong Kong from the Mainland in July 2021 to investigate what had happened and to understand how much funds D1 had in the various bank accounts.  It was then that she discovered the alleged dishonest, fraudulent acts or wrongdoings of D3.  In July 2021, she made a number of complaints to P about D3’s wrongful acts in falsely filing documents with the Companies Registry which removed D2 as director and diluted her shareholding in D1 from 100% to 0.01% in February 2021.  Furthermore, by telephone calls, D2 complained to P and demanded to suspend all trade credit facilities to D1 but was ignored by P.[50]

22.On 26 October 2021, D2 commenced HCMP 1651/2021 (“HCMP Action”)  against D1, D3 and the Registrar of Companies by Originating Summons seeking inter alia: (1)  a declaration that the documents submitted for filing on 24 February 2021, 25 February 2021 and 25 June 2021 at the Companies Registry in respect of D1 are null and void and in any event unenforceable against her and D1; (2)  an injunction to restrain D3 from submitting any further documents for filing at the Companies Registry; (3)  an injunction to restrain D3 from claiming to be a shareholder of D1; and (4)  an order that the Registrar of Companies be directed to forthwith remove various documents from the public record of the Companies Registry.[51]

23.On 29 October 2021, D3 was prepared to give an undertaking in the HCMP Action that he be restrained from doing, procuring, causing, authorizing or permitting any of the following acts: (a)  claiming himself to be a shareholder of D1; (b)  obstructing, interfering or through any other means prejudice D2’s exercise of her rights as director of D1 and (c)  parting with any assets, books and/or accounts of D1. 

24.On 7 December 2021, D2 commenced HCA 1831/2021 (“HCA Action”)  against D3 and Global Sourcing Group Limited (“Global Sourcing”), a company which D3 was the sole director and shareholder.[52] An interim-interim injunction order was granted by DHCJ MK Liu prohibiting D3 and Global Sourcing to dispose of their assets in Hong Kong up to the sum of HK$29,019,042.39[53] (which as divulged by letter from D3’s then solicitors to D2’s solicitors dated 19 November 2021[54] he had diverted from D1 to Global Sourcing).  

25.On 5 January 2022, an Order was granted by consent in the HCMP Action whereby inter alia a declaration was made that the documents submitted for filing on 24 February 2021, 26 February 2021 and 30 August 2021 at the Companies Registry in respect of D1 are null and void, or in any event unenforceable against D1 and D2, and an injunction was ordered to restrain D3 from claiming to be a shareholder of D1[55]. In those proceedings, D3 filed an affirmation dated 26 November 2021[56] which stated inter alia that he did not contest D2’s application as it is his view that this is an unresolved family matter between D2 and him, and he did not want to trouble the court to determine family issue and further conflict with D2 who was the mother of his two children[57].

26.The interim-interim injunction order in the HCA Action was continued until trial or further order by Anthony Chan J (as he then was)  on 29 April 2022.[58]

27.Final judgment in default of defence in the HCA Action was obtained against Global Sourcing on 13 June 2022.[59]

28.D3 was adjudged bankrupt on 26 July 2022.[60] He has never appeared in these proceedings including at the trial of this action.

29.Mr Chow, counsel, appeared for P and Mr Chan, counsel, appeared for D1 and D2 at the trial of this action.

B.   The Issues

30.Notwithstanding an Agreed List of Issues had been filed prior to the trial, by the time of the closing submissions, it being confirmed that: (1)  D2 accepts that she is liable under the Mortgage for the outstanding principal together with the accrued interest as at the date of the OS in the sum of HK$3,357,143.51[61]; (2)  D2 does not allege that she signed the Mortgage by reason of the undue influence of D3; (3)  it never has been pleaded by D1 and D2 that D2 signed the Guarantee under the undue influence of D3; (4)  there is no real dispute as to quantum[62], it seems to me that the main issues that require determination by me are:

(1)  Whether there was a duty on P to explain the contents of the Mortgage and/or the Guarantee to D2 and if so, whether it was explained to her and signed with her informed consent;

(2)  Whether D3 forged D2’s signature in the Alleged Forged Documents such that D1 was never authorised by D2 to apply for the invoicing and overdraft facilities from P;

(3)  Even if D1 and D2’s case of forgery is made out, whether D1 and/or D2 and/or D3 is/are nonetheless liable under the Guarantee and/or the Mortgage and if so, for what amounts;

(4)  Whether after September 2021, P had knowledge of and/or turned a blind eye to the unlawful and/or fraudulent acts of D3 and the transactions in D1’s account with P were as a result of such unlawful/fraudulent acts for which D1 and D2 were not liable; and

(5)  Whether D2 is liable under the Mortgage to deliver vacant possession of the Property.

C.   Applicable Principles

31.It is trite and was not disputed that the evidentiary burden is on the party asserting a case of forgery to adduce sufficient cogent evidence to raise the issue of forgery in order to justify its consideration by the court.   See: Nina Kung v Wong Din Shin (2005)  8 HKCFAR 387 at §176.  As to the standard of cogency which must be satisfied before evidence is considered sufficient to raise a case of forgery, the following propositions taken from Nina Kung were helpfully summarised by Kwan VP in Choi Lisa Mei Yin v Yau Pak Kin [2019] HKCA 812 at §36:

(1)  A standard of cogency is imposed on the party bearing the burden of adducing evidence considered sufficient to raise the issue of forgery. The principle of Re H & Others (Minors)  (Sexual Abuse: Standard of Proof) [1996] AC 563 at 586, per Lord Nicholls of Birkenhead, applies by analogy, factoring in the inherently greater improbability of serious misconduct and requiring the person bearing the burden to prove it with evidence of a commensurate cogency (“the Re H standard”).  So when weighing up and assessing the probabilities in relation to the evidence of forgery, the court must bear in mind the seriousness of the misconduct alleged, recognising that it carries an inherent degree of improbability.  It must take account of propensity and evidence of propensity must go into the balance.  In the absence of evidence of propensity, evidence to a very high standard of cogency is necessary before the court can be justified in finding forgery;

(2)  The evidential burden is to adduce evidence which, properly assessed, is capable of justifying a reasonable inference that the relevant signature was forged.  It is not enough merely to raise suspicious circumstances that did not themselves prove forgery;

(3)  Where the challenge to the genuineness of the signature is based solely upon inferences drawn from circumstantial evidence, any such inference must be properly grounded in the primary facts found.  The court must guard against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.  There is need for a disciplined approach that inferences of serious misconduct are to be drawn only where they are compelling, sufficient to overcome the inherent improbability that serious misconduct would have occurred (HKSAR v Lee Ming Tee & Securities and Futures Commission (2003)  6 HKCFAR 336 at §72, per Mason NPJ)  (“the Lee Ming Tee principle”);

(4)  Where there is direct evidence of execution of a document, expert handwriting evidence is necessarily of a lower order of cogency than such direct evidence;

(5)  When evaluating expert evidence on handwriting, it is important to recognise that such evidence has both a harder, more scientific, side and a softer, less precise facet involving professional judgment of a relatively subjective nature.  While the factual part of the evidence of an expert is verifiable, the opinion part is inherently less precise than a conclusion based on the result of a scientific analysis.  The acceptability of an expert’s opinion depends very much on how sound and convincing the reasons for his opinion are.

32.As for the assessment of witnesses, the applicable principles are well-established and were not disputed.  I gratefully adopt the approach explained by DHCJ H Au-Yeung (as he then was)  in Hu Lan v David Golden [2023] HKCFI 873 at §36:

“When I consider the credibility of various witnesses who had given evidence in court, I shall take into the following matters into account:

(1)  Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2)  Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3)  The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

(4)  The court should consider a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5)  It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6)  On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(7)  While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.”

D.   The Witnesses and My Overall Assessment

33.P called two witnesses: Ng Yau Sze (“Christine”)  and Ho Yau Keung (“Ho”). 

34.D2 was the only witness called to give evidence for D1 and D2.

D1. Christine

35.Christine is P’s Commercial Banking Senior Manager, employed by P since 2017.  She was designated as the relationship manager of D1’s account with P in about September 2020 to replace Jack Sin, the previous relationship manager who had resigned. 

36.Her evidence was that when she took over D1’s account she was in communication with D3 all along until around 29 October 2021, when she received a phone call and WeChat messages from D2.  She met D2 and Mr Lau Ka Yeung Garry of D1 and D2’s solicitors at P’s office on 1 November 2021 (“November 1 Meeting”).  Her evidence, according to her witness statement, is that at that meeting, D2 informed her of her marital problems with D3 and that they are now divorced and requested P to stop lending to D1.   However, when she told D2 that D2 was no longer a director of D1, and as a result P cannot stop lending to D1 on her bare request even though she was a shareholder, D2 mentioned that a legal action had been taken against D3 in relation to D1 without providing any documentation to her.  Furthermore, she reminded D2 of the existing liabilities of D1 under the subsisting facilities and her personal liabilities as guarantor.  According to Christine, D2 then informed her that she had appointed a property agent with a view to dispose of the Property to repay liabilities of D1 with P.  Subsequent to the meeting, D2 sent by WeChat message a property agent agreement with Century 21 in respect of the Property and a sealed court order in the HCMP Action.

37.Christine’s evidence was not hugely shaken by Mr Chan’s cross-examination.  The one matter in her oral evidence that was somewhat inconsistent with her witness statement was whether at the November 1 Meeting, D2 had requested P to stop lending to D1. She said in cross-examination that she cannot recall but when shown what she said in her witness statement, she said that she was certain that was mentioned in the earlier phone call with D2 and perhaps it was also mentioned at P’s office.  Notwithstanding this, I do not regard it as a material inconsistency given the lapse of time and overall, I would accept Christine was generally a truthful witness and what she mentioned were discussed at the November 1 Meeting was generally consistent with the WeChat messages produced by her.

D2.   Ho

38.Ho is the Special Assets Management Senior Manager of P since 2018.  His evidence was that he took over the case around 2022 when Ds had defaulted in repayment. He had no personal involvement in the approval of the facilities to D1 or the execution of any of the documents in this case, save his evidence was that he had previously called D2.  His evidence was also that Christine had subsequently reported to him the November 1 Meeting.  Apart from speaking to the documents produced in support of P’s case, although I have no reason to find Ho to be an incredible or unreliable witness, given his lack of personal knowledge of the execution of the documents and limited contact with D2 and D3, his evidence was of limited assistance.   Indeed, in Mr Chow’s written closing submissions, he frankly admitted that the evidence of P’s witnesses carries little significance in terms of the outcome of this case.

D3.   D2

39.D2 confirmed the content of the affirmations filed in these proceedings, the HCMP Action and the HCA Action as well as her Witness Statement were true and adopted them as her evidence in chief.  However, during cross-examination on many occasions, when asked about what she had said in those documents, apart from saying that she recognized her signature on those documents, she gave the answer that as she does not read English, she was not clear about what was stated therein (even when the documents were again interpreted to her)  and cannot now recall the matters stated therein.   In D1&D2’s Closing, §48 it was accepted that the evidence of D2 “suffers from a lapse of memory”.

40.At times, she even went so far to say that it would be painful for her or she had a headache to recall what had happened and was being badgered or tormented by Mr Chow’s questions, and that she was now suffering from disability/dementia such she could not now recall the details.[63] When she requested me to disallow Mr Chow’s questions which was torturing her at the end of the first day of trial, I allowed her counsel to ask her questions (even though Mr Chow was still in the course of his cross-examination of her)  to ascertain her fitness and willingness to continue to give evidence.  She then indicated that she had no medical records to show that she suffered from dementia and she was willing to continue with the cross-examination.   In the absence of any documentary medical support, I cannot accept the assertion in D1&D2’s Closing, §48 that her lapse of memory could be explained because “she is emotionally disturbed and does not appear capable of recalling the traumatic memories of D3’s actions against her”.

41.In the morning of day 3 of the trial, D2 also professed her heart was not good and she had previous experience where she would go “rigid”.  She accused Mr Chow of badgering or agitating her by his questions notwithstanding I had explained to her that it was part of his duty to ask questions and afford her an opportunity to clarify her case.   I allowed a short adjournment for Mr Chan to take instructions on whether D2 was prepared to continue to give evidence.  Again after the adjournment, it was confirmed that she wished to continue.

42.Notwithstanding, at times during the cross-examination she professed that she could not recall the details of what took place save for the “core matters” or her “core defence”, there were other instances when she was able to recall past events in some details.  Examples of such were the reason why she was the sole owner of the Property notwithstanding she mentioned that the source of funds for the down payment of the Property was from D3’s mother, what D3 had said to her to persuade her to remortgage the Property to P, her requesting D3 to be a guarantor and having failed but did request D3’s father to be a guarantor, what happened when she went to P’s offices on the two occasions in 2021 and the conversations with a counter staff of P.  Her selective memory and reluctance to answer Mr Chow’s questions at the trial have all the hallmarks of an evasive witness.

43.Moreover, her evidence in her witness statement in these proceedings differed from her affirmation filed in these proceedings and also in the HCMP and HCA Actions. When she was offered an explanation in cross-examination to explain the inconsistencies, she was not able to do so by saying that she cannot answer the question and stood by those documents as “having legal validity” and they bore her true signatures.

44.As for the inconsistencies in her evidence, I only need to highlight a few. 

45.Firstly, in these proceedings, D2’s evidence in her witness statement was that whilst she had incorporated D1, since her son was born in 2007, she had to stay home to take care of her children.  From the beginning of 2008, D3 began taking over D1’s sales operations and had been assisting the operations for many years and had deep involvement in the internal operations and financial matters of D1.[64] 

46.However, this is flatly contradicted by the affirmations previously filed by her:

(1)  In D2’s Affirmation filed in the HCMP Action on 26 October 2021, it was stated that even though she and D3 were divorced in 2017, the Business continued as usual and she continued to run D1 until her health took a downward spiral in 2017 and that she added D3 as an additional bank signatory to D1’s bank accounts since 2017.[65] However, she maintained even in her poor health, she did not resign as a director[66];

(2)  In D2’s Affirmation filed in the HCA Action on 7 December 2021, she stated that as the sole shareholder of D1, she made all major business decision herself and D3 all along played a supporting and administrative role in D1, and she only gave D3 power to control D1’s finances in 2017 when her physical health deteriorated[67].  Only after her health deteriorated in 2017, she was not able to be as involved in D1 as before and trusted D3 to continue the business of D1[68];

(3)  In the Affirmation filed in these proceedings on 23 August 2022, it was stated that in January 2020 her father got quite sick and she had to go to Guiyang City in the Mainland to take care of him. Soon after, the COVID pandemic caused the closure of the Chinese border and also due to her poor health she was not able to come back.  In her absence, D3 managed D1 and its business and operation[69].

47.Secondly, whilst Mr Chan in his oral closing submissions confirmed that no case of undue influence was now maintained, D2’s pleaded case that she had signed the Mortgage under the undue influence of D3 is contrary to her Affirmation filed in these proceedings.  She was able therein to give a detailed account as to the fact that she was approached by P’s staff offering trade credit facilities and following discussions between her and D3 she was convinced there were advantages and accepted P’s offer.[70] She was clearly able to state that she had signed the Mortgage as the mortgagor and as authorized director of D1 as borrower.[71]  There was no mention of any undue influence in that Affirmation.  She further acknowledged that D1 was indebted to P under the 2015 Facility Letter but claimed all indebtedness had been settled long time ago.[72]

48.Besides, the claim that she was unduly influenced by D3 was flatly contradicted by her oral evidence.  During her cross-examination, she mentioned that it was her that asked D3 to be a guarantor and even prior to 2015, she was aware what a guarantor was.[73]  Plainly, she also had the experience from the previous mortgage obtained from BOC.  She also mentioned that all along D3 just listened to whatever she said and he respected her because she was the mother of his children, and also because he followed her to do business as soon as he had finished schooling.[74]  She further mentioned and stressed their relationship was one of master and apprentice, and D3 was her apprentice.[75]  In these circumstances, it is highly improbable for D3 to have asserted any dominant influence over her.  Although, she also stated that she trusted D3 and would sign anything he placed before her and asked her to sign, this is inconsistent with her evidence that she did not put the Property in his name to protect herself and kept a close eye on this matter,[76] and that their marital relationship had problems and became irreparable, leading to the divorce[77].

49.Given the many internal inconsistencies in her evidence, which were not supported by any contemporaneous document or independent witness, her evasive attitude and evident self-interest in these proceedings, overall, I did not find D2 to be a credible and reliable witness.  In the case of any inconsistency between her evidence and that of P’s witnesses, I would prefer the evidence of Ps’ witnesses.

E.   My Findings on the Issues

E1.   Whether there was a duty on P to explain the contents of the Mortgage and/or the Guarantee to D2 and if so, whether it was explained to her and signed with her informed consent

50.D2’s evidence that she does not read and understand English[78] was unchallenged and I am prepared to accept that.

51.However, as Mr Chow submitted, there is no general duty in law to explain the contents of the Guarantee and Mortgage. 

52.In Bank of China, Hong Kong Branch v Tsoi Ming Wai (unrep)  HCMP 3422/2001, 20 February 2003, the plaintiff agreed to lend a mortgage loan to the defendant and by a legal charge the defendant mortgaged her property to the plaintiff as security for the loan.  Poon J (as he then was)  held at §4 the complaint that the legal charge had not been explained prior to execution of the same, even if true, was neither here nor there as there was no duty on the part of the plaintiff or the defendant’s solicitors to explain its content.  On the basis of this authority, which was not challenged by Mr Chan, I will also hold there was no duty for P to explain the Mortgage to D2.

53.Furthermore, in Bank of China, Hong Kong Branch, ibid, Poon J referred to Barclays Bank plc v Khaira [1992] 1 WLR 623 and Kincheng Banking Corporation v Kao Yu Kuei [1986] HKC 212.  Kincheng Banking Corporation concerned the plaintiff bank seeking inter alia to enforce a guarantee against the second defendant who admitted having signed what he knew to be a guarantee but did not know he was liable to repay as the bank officer had explained it in Cantonese which he did not understand.  Huggins VP (with whom the other two Justices of Appeal agreed with)  held at 215E-F that the first instance judge’s finding that the plaintiff contributed to the second defendant’s damage by not reading and explaining the document in the right language could not stand as there was no duty to read and explain the document in any language or dialect.

54.In the present case, D2 also admitted that she knew what a guarantee was and given that she admitted that she had signed the Guarantee (which included a Chinese version of the Guarantee[79])  and a Chinese version of the Guarantors/Security Provider Confirmation Letter[80] were provided to her, the fact that the Guarantee was not explained to her affords her no defence to P’s claims under the Guarantee.  Again, Mr Chan did not make any submissions to the contrary.

55.Given that there is no such duty on the part of P to explain either the Mortgage or the Guarantee to D2, and in the present case D2 clearly knew what a mortgage and guarantee was, it is not necessary for me to consider whether they were explained to her.

E2.   Whether D3 forged D2’s signature in the Alleged Forged Documents such that D1 was never authorised by D2 to apply for the invoicing and overdraft facilities from P

56.I am of the view that D1 and D2 have not satisfied their evidentiary burden that the Alleged Forged Documents were forged.

57.Firstly, it is inherently unlikely that D3 would have forged the Alleged Forged Documents:

(1)  D3 is said to have forged D2’s signature in 9 separate documents (the Alleged Forged Documents)[81] between 2015 and 2020 which are very serious allegations against D3 which makes it inherently unlikely to have occurred;

(2)  Even though their marital relationship deteriorated leading to D2’s filing of a divorce in 2016[82], she allowed D3 to remain as a director with a monthly salary of HK$60,000 after the divorce.  D2 evidently continued to trust D3 with the running of D1.  According to her, she added D3 as an additional authorized signatory in 2017 so that he could conduct the business of D1 when she was not in Hong Kong.  Furthermore, D2’s evidence was that she would always signed whatever documents D3 had told her to sign without reading.   Given D3’s position as a director, coupled with the trust allegedly reposed on him, he would not need to forge D2’s signature. He simply needed to pass the documents to D2, instruct her to sign and she would sign whatever she was told to.  It is unlikely that he would risk committing the serious crime of forging D2’s signature and the severe consequences if found out;

(3)  Whilst it is alleged D3 had been forging her signature since 2014 or 2015, there is no allegation by D2 that he misappropriated any funds from D1 at least until August 2020[83]. There is no suggestion that the increased facilities between 2015 and 2020, which were undisputedly on better terms than the 2015 Facility Letter, were not for legitimate purposes of D1.  It is not comprehensible why D3 would need to forge D2’s signature to carry out legitimate activities which is in the interest of D1 with no financial gain to himself; and

(4)  Specifically, in relation to the Mandate which D2 alleged her signatures thereon were forged, by the 2015 Board Resolution (which D2 did not allege her signatures thereon were forged)  P was informed that both D2 and D3 were authorised to give instructions for arranging of advances to D1 and sign documents on behalf of D1 etc[84]. There was no conceivable need for D3 to forge D2’s signature on the Mandate for D2 to be authorised to give instructions to P.  He could have simply signed the necessary documents in his capacity as director of D1.

58.Secondly, there is only D2’s bare assertion that the signatures on the Alleged Forged Documents were forged.  D2 had pointed out in her witness statement the basis which she contends the signatures were forged in the Alleged Forged Documents[85] as follows:

(1)  D2 does not sign her name with a dot at the end;

(2)  The manner in which the first character of her name “李 ” is signed is different from the forged signature, especially on the lower part of the character “子”;

(3)  The second character of her name“賢” is signed differently. On the genuine version, D2 signed the lower part of the character “貝” is in the simplified form, without closing the whole character; and

(4)  The last character of her name “秀”, the upper part of the character is a congruous stroke with a little circle on the “禾”. That is different from the forged signature, where the stroke of the upper part is visibly different.

59.However, as to whether these discrepancies and variance to what is said to be her genuine signature means that they were forged, and she would have unlikely signed two different signatures on the same day in signing the Mandate, it remains her bare allegation.  Whilst usually direct evidence of execution of a document is of a higher order of cogency than expert handwriting evidence, in light of my finding that she was not a credible and reliable witness, the absence of independent witness to support her allegation, my analysis of the inherent probabilities above and that D3 had little propensity to forge the Alleged Forged Documents, I take the view that the standard of cogency required is not satisfied to raise a case of forgery. 

60.I have not overlooked D2’s submissions that in the HCMP Action and HCA Action, there were allegations of fraud levied against D3 for which D3 never defended and allowed judgments to be entered against with costs.  However, as mentioned already, the final orders in the HCMP Action were granted by consent and D3 had explained his reasons for not contesting the same.  In any event, the orders did not include any declaration of forgery.  Similarly, in respect of the HCA Action, no allegations of the use of forged documents were made therein in her claims of alleged misappropriation against D3.  In all, I am not satisfied there is any evidence of D3’s propensity to forge documents.

61.I also have not overlooked that D2 has produced her travel records to show that she was not in Hong Kong from 25 August 2017 to 23 September 2017 and 17 January 2020 to 7 July 2021[86] and could not have signed on the some of the Alleged Forged Documents.  These were identified in D1&D2’s Closing as: (1)  the 2017 Facility Letter (this was dated 5 September 2017 but the date of execution is unknown)[87]; (2)  the 2020 Facility Letter (dated 3 November 2020 but again the date of execution is unknown)[88]; (3)  Certified Extract of Board Resolutions dated 6 September 2017 (which stated a meeting of directors was held at the registered office “dated” 6 September 2017)[89] and dated 11 December 2020 (which stated a meeting of directors was held at the registered office “dated” 11 December 2020)[90].  However, in relation to the two facility letters, it is not apparent when and where they were signed so it is a real possibility they were subsequently signed when she was in Hong Kong or were taken for her to sign in the Mainland.  As for the Certified Extract of Board Resolutions, it is also not clear if the board meetings took place when it was dated and again it is possible they were signed during the period she was to Hong Kong.  Whilst D2 had denied in cross-examination that documents such as the financial statements and the 2017 Facility Letter could be couriered or delivered to her for signing when she was in the Mainland[91] and stated that she could not be reached through WeChat, as I do not find her a credible and reliable witness, and it is inherently unlikely in this day and age, I would not accept her bare denial.  Her rejection out of hand of the suggestion in cross-examination because “it never happened” demonstrates how she is prepared to stick to her case notwithstanding it is out of touch with reality and modern technology.

62.Taking a holistic view and looking at the evidence in the round, D1 and D2 not having satisfied me of their evidentiary burden on their case of forgery, I need not consider this issue.

E3.   Even if D1 and D2’s case of forgery is made out, whether D1 and/or D2 and/or D3 is/are nonetheless liable under the Guarantee and/or the Mortgage and if so, for what amounts

63.Even if I am wrong on the evidentiary burden and even if had I gone on to consider the case of forgery in respect of the Alleged Forged Documents and was satisfied to the necessary standard of proof that D2’s signatures thereon were forged, I am of the view that Ds remains liable to P.

64.In D1&D2’s Closing, §58, it was submitted that if the court finds that the Alleged Forged Documents were forged, D3 had no authority to borrow any money on behalf of D1.  However, it is plain that even if D3 had no authority to borrow any money on behalf of D1, that is not a defence to P’s claims.

65.Firstly, in respect of D1, under clause 1 the GACB (signed by D2 on behalf of D1 which is not disputed to be her signature), it was agreed that D1 would pay to P “all moneys advanced or paid whether by way of overdraft or otherwise or liabilities absolute or contingent incurred to or for me… or any monies due or liabilities incurred on any account or in any manner whatever … whether as principal or surety now or at any time due owing or incurred … together with interest to the date of payment at such rate as you may from time to time charge and all charges commissions fees costs and expenses (including legal costs on a solicitor and own client basis)  as they appear in your books.”[92] [my emphasis in bold]

66.Clause 4 also makes clear that the GACB is a continuing agreement and applies to “past, present, future and contingent obligations and liabilities to you including those arising under successive transaction which shall either continue existing obligations and liabilities, increase or decrease them or from time to time create new obligations or liabilities…” [my emphasis in bold].[93]  Thus, even if the Alleged Forged Documents contained the forged signature of D2, it cannot affect D1’s liability under the GACB when such was intended to include future and contingent obligations and liabilities of D1.

67.In any event, D2 accepted that she had signed the Mortgage and that her signature therein was not forged.  In so signing with the company chop and having applied the company seal on behalf of D1, as the Principal, D1 is bound by the terms of the Mortgage.  Again, it is clear that D1 is liable to pay to P all present and future indebtedness.  See clause 1 of the Mortgage which provides that the Mortgagor (D2)  and the Principal (D1)  jointly and severally covenant with P that they will: “(a)  pay to [P] all present and future indebtedness of [D1] to [P] according to the books of [P] on any current or other account together with all bank charges thereon; and (b)  pay to [P] all costs charges and expenses howsoever incurred by [P] … in relation to this Mortgage on a full indemnity basis; and (c)  discharge or satisfy all other liabilities and/or obligations of [D1] to [P] according to the books of [P] whether present future actual or contingent or as principal or guarantor and whether due alone or with any other person…”[94].[my emphasis in bold]

68.As for D2’s own position, under the Mortgage (which she accepts she had signed and is liable for the principal of the mortgage loan and interest), as mentioned already, under clause 1 she (jointly and severally with D1)  is liable for all present and future indebtedness of D1[95].

69.D2 is also liable under clause 3 of the Guarantee as primary obligor to indemnify P against all reasonable amount of costs, expenses, loss or damages incurred or suffered by P as a result of or in connection with the failure of D1 to discharge the Guaranteed Liabilities[96] (defined in clause 1 to include “all moneys and liabilities whether actual certain or contingent which are now or may at any time hereafter be owing or incurred or due to P by D1”[97]). [my emphasis in bold]

70.Clause 9(b)  of the Mortgage further makes clear that D2’s liability under the Mortgage is not affected by P renewing, varying or increasing any credit or other facilities to D1 without the consent of or notice to D1 and/or D2: “Without prejudice to this Mortgage and without discharging or in any way affecting the liabilities of [D2] hereunder, [P] may at all times without the consent of or notice to D2 and/or D1: - (i)  renew, determine, vary or increase any credit or other facilities to [D1] or the terms or conditions in respect of any transaction with [D1] in any manner whatsoever…”[98]. [my emphasis in bold]  Similarly, see Clause 6 of the Guarantee[99].

71.Furthermore, even if D2’s signature had been forged and there was a lack of authority for D3 to apply for credit facilities on behalf of D1, the “principal debtor clause” in both the Guarantee and the Mortgage has the effect that they remain enforceable as against D2:

(1)  Clause 15 of the Guarantee provides:

“Should any purported obligation or liability of the Customer which, if valid or enforceable, would be the subject of this Guarantee be or become wholly or in part invalid or unenforceable against the Customer on any ground whatsoever, including any defect in or insufficiency of want of powers of the Customer, or irregular or improper purported exercise thereof, or breach or want of authority by any person purporting to act on behalf of the Customer, or any legal limitation, disability, mental or other incapacity, or any other fact or circumstances, whether or not always known to the Bank, or if for other reason whatsoever the Customer is not or ceases to be legally liable to discharge any obligation or liability undertaken or purported to be undertaken on behalf of the Customer, the Guarantor(s)  shall nevertheless be liable to the Bank in respect of that obligation or liability or purported obligation or liability as if the same were wholly valid and enforceable and the Guarantor(s)  were the principal debtor(s)  in respect thereof. The Bank shall not be concerned to see or enquire into the powers of the Customer or the employee or agents of the Customer or any other person or persons purporting to act on behalf of the Customer. No act or omission on the part of the Bank which would not have discharged or affected the liability of the Guarantor(s)  had the Guarantor(s)  been principal debtor(s)  instead of the guarantor(s)  shall in any way affect, discharge or diminish the validity of the Guarantee or the liability of the Guarantor(s)  hereunder.”[100] [my emphasis in bold]

(2)  Clause 9(h)  of the Mortgage similarly provides:

“Should any purported obligation or liability of the Principal which, if valid or enforceable, would be the subject of this Mortgage be or become wholly or in part invalid or unenforceable against the Principal on any ground whatsoever, including any defect in or insufficiency or want of powers of the Principal, or irregular or improper purported exercise thereof, or breach of want of authority or any person purporting to act on behalf of the Principal, or any legal limitation, disability, mental or other incapacity, or any fact or circumstances, whether or not always known to the Mortgagee or if for any reason whatsoever the Principal is not or ceased to be legally liable to discharge any obligation or liability undertaken or purported to be undertaken on behalf of the Principal, the Mortgagor shall nevertheless be liable to the Mortgagee in respect of that obligation or liability or purported obligation or liability as if the same were wholly valid and enforceable and the Mortgagor were the principal debtor in respect thereof. The Mortgagee shall not be concerned to see or enquire into the powers of the Principal or the employees or agents of the Principal or any other person or persons purporting to act on behalf of the Principal. No act or omission on the part of the Mortgagee which would have discharged or affected the liability of the Mortgagor had the Mortgagor been principal debtor instead of the guarantor shall in any way affect, discharge or diminish the validity of this Mortgage or the liability of the Mortgagor hereunder.[101] [my emphasis in bold]

72.The effect of such clauses has been explained in Pan Global Limited v Silver Tech International Limited & Ors (unrep)  CACV 377/2005, 25 July 2006 at §8(5)  per Ma CJHC (as he then was):

“Even if for the sake of argument there was a lack of authority (actual or ostensible)  as alleged by the 3^rd Defendant, clause (3)  of the Guarantee provides in my view the complete answer. That clause is a variation of what is known as a principal debtor clause. The effect of such clauses is to render a guarantor (the surety)  liable as a principal, and not just as a secondary, debtor. Often, such clauses will specifically identify those situations in which, notwithstanding any difficulty with enforcing the relevant contract as far as the principal debtor (in the present case, the 1^st Defendant)  is concerned, the guarantee will nevertheless be enforceable against the guarantor. As is put in Andrews and Millett: Law of Guarantees (4^th ed)  at paragraph 6-028, ‘If such a clause is to be used in the guarantee, it should be wide enough to cover all the circumstances which may render the principle contract void, voidable or unenforceable.’ In the case of clause (3), it is expressly provided that notwithstanding that the obligation of the 1^st Defendant may become wholly or partially invalid or unenforceable, the guarantor will nevertheless remain liable. Any guarantor under the Guarantee is expressly stated to be a principal debtor. I see no reason why a clause such as clause (3)  requires a trial or an Order 14A application to resolve its true construction. Nothing in the Hang Seng Bank case dictates otherwise.”

73.Thus even if the signatures of D2 on the Facility Letters subsequent to the 2015 Facility Letter were forged with the effect as to render them void, I cannot see how it can affect D2’s liabilities under the Mortgage when: (1) neither D1’s nor D2’s consent was not required to vary the facilities and their terms or conditions to D1; and (2)  any lack of authority of any person purporting to act on behalf of D1 insofar as may render the obligation of D1 invalid or unenforceable against D1 has been expressly excluded by the terms of the Guarantee and Mortgage. 

74.It follows that it is not necessary to even consider whether on the facts of this case, like in the cases relied upon by Mr Chan (including Hua Rong Finance Ltd v Mega Capital Enterprises Ltd & Anor [2001] 2 HKLRD 1, upheld by the Court of Appeal in [2001] 3 HKLRD 623, but it is noted that it does not appear the bank relied on any principal debtor clauses in that case)  P could not rely on the ostensible authority of D3 as a director but had been put on enquiry so had to ensure (by enquiring with D2)  that the borrowing were authorized by D1.

75.As for D3, his position being the same as D2 in respect of the Guarantee, he is also liable under clause 3 as guarantor.

76.As for quantum, Mr Chan rightly did not take issue on this.  There are conclusive evidence clauses in both the Mortgage (see clause 9(m)[102])  and the Guarantee (see clause 24[103])  which provide that a certificate in writing signed by a duly authorised officer of P shall be conclusive evidence against D1 and D2.  As held by DHCJ Le Pichon in Citibank N.A. v Dayaram Nanik & Anor (unrep)  HCA 2145/2011, 3 June 2013, at §§50-51, an affirmation from an officer of the bank would satisfy the requirement of a certificate.  In the Affirmation of Ho Yau Keung §25, he has stated the amounts due as at the OS as set out in paragraph 1 above.

E4. Whether after September 2021, P had knowledge of and/or turned a blind eye to the unlawful and/or fraudulent acts of D3 and the transactions in D1’s account with P were as a result of such unlawful/fraudulent acts for which D1 and D2 were not liable

77.In D1-D2’s Closing apart from one paragraph (§78)  that “transactions after September 2021 were a result of unlawful and fraudulent acts by D3, P had knowledge of the fraud in July 2021 when D2 started calling P to complain, leading to escalation of a formal meeting between D2 and Ms Ng on 1 November 2021 when D2 engaged in correspondence with P through Solicitors.  P has been turning a blind eye by failing to investigate D3’s conduct at all notwithstanding D2’s multiple complaints”, Mr Chan had not provided any authorities nor submitted how there was any duty on P’s part to investigate D3’s conduct and to take any steps in relation to P’s business with D1.

78.As a matter of fact, I do not accept that D2 had complained to P or its officers that the Alleged Forged Documents were forged or D3 did not have authority to act on behalf of D1.  At most, on D1&D2’s case, P had been put on notice of D2’s one sided allegation that D3 had fraudulently filed false registration documents with the Companies Registry or used “false CR registration documents”[104].  The Order made against D3 on 29 October 2021 in HCMP 1651/2021[105] which was provided to Christine on 3 November 2021[106] also would not have revealed any allegation of forgery in relation to documents submitted to P by D2 on behalf of D1.

79.Besides, even if I were to accept D2’s factual case, I cannot see how it affords any defences to D1 and D2 for P’s claims.

80.Under both the Guarantee and the Mortgage, it is made clear that:

(1)  The Bank shall not be concerned to see or enquire into the powers of the Customer or the employee or agents of the Customer or any other person or persons purporting to act on behalf of the Customer.  No act or omission on the part of the Bank can discharge or affect the liability of the Guarantor(s)  (clause 15 of the Guarantee[107]); and

(2)  The Mortgagee shall not be concerned to see or enquire into the powers of the Principal or the employee or agents of the Principal or any other person or persons purporting to act on behalf of the Principal. No act or omission on the part of the Mortgagee which would have discharged or affected the liability of the Mortgagor had the Mortgagor been principal debtor instead of the guarantor shall in any way affect, discharge or diminish the validity of this Mortgage or the liability of the Mortgagor hereunder (clause 9(h)  of the Mortgage[108]).

81.Given the above clauses, D2’s allegations of P “turning a blind eye” or that it failed to investigate cannot assist D1 and D2 as any acts or omission on P’s part cannot discharge or diminish their liabilities under the Mortgage and the Guarantee.

E5.   Whether D2 is liable under the Mortgage to deliver vacant possession of the Property

82.I have inspected the original of the Mortgage. I am also satisfied the other requirements under O.88, r.5 of Rules of the High Court, Cap.4A have been complied with. 

83.In these circumstances, P is entitled to an order for possession of the Property.

F.   Disposition and Orders

84.Accordingly, judgment should be entered in favour of P.  I would order as follows:

(1)  D1, D2 and D3 do jointly and severally pay to P:

(a)  the sums of EUR915,090.62 and HK$4,683,550.28;

(b)  interest on the total principal in the sum of EUR 881,686.21 at an interest rate of 9.25% per annum (equivalent to daily interest of EUR226.54)  from 2 June 2022 to the date hereof and thereafter at judgment rate until full payment;

(c)  interest on the principal sum in the sum of HK$1,269,266.82 at an interest rate of 15.25% per annum (equivalent to daily interest of HK$530.31)  from 2 June 2022 to the date hereof and thereafter at judgment rate until full payment; and

(d)  interest on the principal sum of in the sum of HK$3,333,062.57 at an interest rate of 13.25% per annum (equivalent to daily interest of HK$1,209.95)  from 2 June 2022 to the date hereof and thereafter at judgment rate until full payment;

(2)  D2 do within 28 days deliver to P vacant possession of the Property (known as ALL THOSE pieces or parcels of ground registered in the Land Registry as THE REMAINING PORTION OF SECTION A OF LOT NO. 700 AND SECTION C OF LOT NO. 701 BOTH IN DEMARCATION DISTRICT NO. 9 together with the messuages erections and buildings erected thereon (“the Building”)  (as shown and coloured Pink on the Plan attached to the Building Licence registered in the Land Registry by Memorial No. 10051401650304 (also known as No. 73B, Yuen Long, Tai Po, New Territories));

(3)  Upon the D1 and/or D2 and/or D3 paying to P the moneys ordered to be paid in paragraph (1)  above, P (subject and without prejudice to the due exercise of any power of sale for the time being vested in it)  do re-deliver to D2 possession of the Property and release to D2 the security constituted by the Mortgage.

85.I see no reason why costs should not follow the event.  Furthermore, P seeks costs on an indemnity basis in accordance with clause 30 of the Guarantee[109] and clause 1 of the Mortgage[110]. I will make a costs order nisi that P’s costs of this action be paid by Ds, with certificate for counsel, on an indemnity basis, to be taxed if not agreed.  If there is no application to vary within 14 days from the date of this Judgment, the costs order nisi shall become absolute.

86.Lastly, I thank counsel for their abled assistance.

Mr Tony HH Chow, instructed by Messrs. P.C. Woo & Co., for the Plaintiff

Mr Sunny Chan, instructed by Messrs. Franki Ho & Associates, for the 1^st and 2^nd Defendants

The 3^rd Defendant was not represented and did not appear