Wing Hang Bank Ltd. v. Liu Kam Ying and Others

HCMP002519/2001

HCMP2519/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2519 OF 2001

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Coram: Hon Ma J in Chambers

Date of Hearing: 28 February 2002

Date of Decision: 28 February 2002

Date of Reasons for Decision: 6 March 2002

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REASONS FOR DECISION

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The application before the court

1.By an originating summons issued on 9 May 2001 (and amended on 31 May 2001), the plaintiff bank commenced proceedings under RHC, Order 88 against six defendants seeking, inter alia, the delivery up of vacant possession of three sets of premises and also the payment of monies due.

2.he plaintiff's claims arise out of a legal charge dated 28 September 1999 ("the Legal Charge") whereby in consideration of the plaintiff extending banking facilities to the 6th defendant, various properties were mortgaged to the plaintiff.

3.In this application, I am concerned only with the position of the 5th defendant. The plaintiff claims against the 5th defendant under a guarantee also dated 28 September 1999 ("the Guarantee") whereby the 5th defendant (jointly and severally with the 2nd and 4th defendants, respectively his mother and father) guaranteed the liabilities of the 6th defendant.

4.Default having occurred in the repayment of the 6th defendant's liabilities towards the plaintiff, a letter of demand dated 13 March 2001 was sent to the 5th defendant demanding payment of the 6th defendant's indebtedness to the plaintiff as at that date. Judgment was entered against the 1st, 2nd, 3rd, 4th and 6th defendants by Master Lung on 2 August 2001 for various sums. Possession of the three sets of properties have been recovered by the plaintiff.

5.Master Lung adjourned the plaintiff's claim against the 5th defendant giving directions for the filing of evidence. This resulted in the 5th defendant serving two affirmations (dated 30 July 2001 and 15 August 2001) in opposition to the plaintiff's claim.

6.On 11 January, Master H.C. Wong adjourned the originating summons to a Judge in Chambers, leaving open the question whether or not there should be cross-examination of the deponents of the various affirmations before the court.

7.While normally the substantive hearing of an originating summons should be in open court (see Hong Kong Civil Procedure 2002 at para.28/9/2), where, as in the present case, the plaintiff seeks a summary determination of the matter (akin to an application for summary judgment), the hearing can take place in chambers : see RHC, Order 28, rules 4(1), 9(1); International Bank of Asia Limited v. Kewpaisal Warranuch, unreported, 4 March 1999, HCMP1421/1998, Yuen J. The difference between an application for summary judgment under the originating summons procedure and an application for summary judgment under RHC, Order 14 is that the burden is not on the defendant in the case of the former : see International Bank of Asia Limited at pp.5S to 6A.

8.At the conclusion of arguments at the hearing of the plaintiff's application for summary judgment, I made the following orders, namely, that :

(1) There be judgment to the plaintiff against the 5th defendant in the sum of HK$11,783,350.80 and US$294,097.38.

(2) Interest to accrue on the said sums as from 31 July 2001 to date at the rates set out in the paragraphs 3(3) to 3(7) of the 2nd affirmation of Lee Shun Wah dated 30 July 2001; from the date of judgment to date of payment at the judgment rate.

(3) Costs of the originating summons be to the plaintiff to be paid by the 5th defendant on a solicitor and own client basis, such costs to be taxed if not agreed and to include all costs which have been reserved.

The plaintiff's claim

9.The plaintiff's claim is simple as one would expect in a claim under a guarantee. The plaintiff alleges that monies are due and owing by the 6th defendant debtor, whose indebtedness was guaranteed by the 5th defendant and a demand has been made under the Guarantee. These matters are proved on the affirmation evidence served on behalf of the plaintiff.

The defences

10.Unlike Order 14 applications where the defendant is obliged to provide sufficient grounds to justify the action continuing to trial, the burden in summary judgment applications under the originating summons procedure is on the plaintiff to justify its entitlement to summary judgment. However, once this is prima facie demonstrated on the evidence, it is then up to the defendant to show that he does have a defence or defences to the claim. In this way, there may in practice be little difference between an application for summary judgment in originating summonses and an application for summary judgment under RHC, Order 14.

11.In the present case, although the defendant has not appeared in the hearing before me, it is clear that three defences are maintained in his two affirmations :

(1) Non est factum.

(2) Undue influence.

(3) Misrepresentation.

12.I deal with each of these defences in turn.

Non est factum

13.The 5th defendant's case here is that the document he signed (i.e. the Guarantee) was different in nature to what he intended to sign. The particulars of this defence are that the 5th defendant thought that he was signing purely on behalf of the 6th defendant and not in his personal capacity.

14.In my view, this defence does not make sense at all and must be rejected. No allegation is made that he was unaware that what he was signing was a guarantee. Thus, what the 5th defendant is in effect asserting is that a guarantee for the liabilities of the 6th defendant was entered into by the 6th defendant itself. This makes no commercial or any sense. Further, the 5th defendant is a man of full age and capacity. There is no reason at all why he should not be bound by the terms of the Guarantee which clearly states his liability on a personal basis. If he did not read the terms, this was negligent on his part and the defence of non est factum is unavailable in these circumstances.

15.In my judgment, the defence of non est factum fails.

Undue influence

16.The principles of undue influence have recently been the subject of an extensive review by the House of Lords in Royal Bank of Scotland v. Etridge (No.2) [2001] 3 WLR 1021. I have tried to summarize the relevant principles in my judgment in Bank of China (Hong Kong) Limited v. Wong King Sing [2002] 1 HKC 83.

17.Where third parties such as banks are involved and it is alleged that the relevant contract (in the present case a guarantee) came about as a result of undue influence being exerted on the party sued thereunder, there are three questions that the Court must deal with :

(1) Has it been proved that the transaction was affected by undue influence in the first place?

(2) Was the third party put on inquiry?

(3) If the third party was put on inquiry, did he take reasonable steps to satisfy himself that there was no undue influence?

See : Royal Bank of Scotland v. Etridge at p.1054 at para.101 per Lord Hobhouse of Woodborough.

18.Only if all three questions are answered in favour of the party being sued, would the defence succeed. In the present case, even if I could be satisfied that questions (1) and (3) could be answered in favour of the 5th defendant (and I should not be taken to accept that this is the case), question (2) just cannot be satisfied on the evidence served by the 5th defendant.

19.Nothing in the evidence suggests even remotely that the plaintiff would or might have been put on notice, whether actual or constructive, that undue influence was or might have been exercised on the 5th defendant in the present case when he signed the Guarantee. The 5th defendant alleges that he was unduly influenced by his father, the 4th defendant. Even if this is true, the plaintiff had no inkling of this at all. All that the plaintiff knew was that the 5th defendant was the 4th defendant's son who also happened to be the majority shareholder of the 6th defendant and who had signed in the past important commercial documents for the 6th defendant. It is true that the 5th defendant alleges that the 4th defendant directed him to sign documents and that he was just a nominee for the 4th defendant in holding 91% of the shares in the 6th defendant, but it is not alleged that the plaintiff knew or should have known this. That leaves only the fact that the 5th defendant was the 4th defendant's son and this is not enough by itself to raise any presumption at all.

20.I should perhaps add that there is no question of the 4th defendant being the plaintiff's agent for the purposes of the Guarantee either. No such allegation is made and there is no evidence to support such an assertion were it to be made.

21.In my judgment, the defence of undue influence likewise fails.

Misrepresentation

22.The defendant alleges here that the 4th defendant misrepresented to him his liability under the Guarantee by saying that he (the 5th defendant) would never be personally liable under it. Even if true, there is no allegation that the 4th defendant was acting as the plaintiff's agent when this alleged misrepresentation was made.

23.The defence, therefore, also fails.

Costs

24.I should finally add that the order for costs on a solicitor and own client basis reflects the contractual obligation of the 5th defendant under the Guarantee to be liable for the 6th defendant's indebtedness, which includes the legal expenses incurred by the plaintiff in recovering the indebtedness due to it.

Representation:

Mr Tai Sin Chung of Messrs W.K. To & Co., for the Plaintiff

Chan Siu Ming, the 5th Defendant, absent