Read the full judgment text of CACV 255/2002 on BabelCite. This Court of Appeal judgment was delivered on 27 April 2005 before Ma CJHC, Suffiad J, Lam J.
Civil procedure – pleadings – mortgage – legal charge – all-monies charge – whether unpleaded defences of misrepresentation and undue influence can be raised for the first time on appeal – whether mortgagee bank had constructive notice of equity to set aside – Civil Justice Reforms – Town House L and two car parking spaces at Kellett View Town Houses, Mount Kellett Road – Facility Letter dated 19 May 1997 – banking facilities increased from $44 million to $117 million – secured indebtedness of $175,498,522.16 – RHC O.18 r.12(1)(a) – Poon Hau Kei v Hsin Chong Construction Co Ltd [2004] 2 HKLRD 442 – Chater v Mortgage Agency Services Number Two Ltd [2004] 1 P&CR 28 – Royal Bank of Scotland v Etridge (No.2) [2002] 2 AC 773 – Li Sau Ying v Bank of China [2004] 3 HKLRD 106 – Gould v Mount Oxide Mines Limited (1916) 22 CLR 490 – First issue: whether the 1st Defendant was permitted to raise unpleaded defences of misrepresentation and undue influence for the first time on appeal – held: no, as neither defence was pleaded in the Defence and Counterclaim and undue influence was expressly disavowed at trial – a plea of undue influence is highly fact-sensitive and the other party must have the opportunity to meet the case in evidence – the Court of Appeal will rarely allow unpleaded issues of fact to be run for the first time, save in exceptional circumstances – purpose of pleadings is to fairly and precisely inform the other side of the case to be met and to identify the live issues for trial – Second issue: whether the 1st Defendant established an equity to set aside the Legal Charge – applying the test in Chater v Mortgage Agency Services Number Two Ltd, the appellant must first show an equitable wrong (such as misrepresentation or undue influence) before the bank's position as constructive trustee falls for consideration – held: no equity established – the judge found that CH Ko knew and understood the nature and effect of the Facility Letter and the Legal Charge, and that the solicitors' clerk had explained all that was required to be explained – CH's failure to complain upon receipt of a demand for over $124 million in November 1998 demonstrated that he knew the full extent of the liability – Third issue: whether the Plaintiff bank was put on inquiry and failed to take reasonable steps to satisfy itself that the 1st Defendant understood the transaction – under Royal Bank of Scotland v Etridge (No.2) and Li Sau Ying v Bank of China, the bank is on inquiry as to whether the surety understood the nature and effect of the transaction and must take reasonable steps to satisfy itself of this – held: even if an equity had existed, the Plaintiff would not have been fixed with constructive notice, as the solicitors' clerk had explained all that needed to be explained and Clause 21 of the Legal Charge informed the 1st Defendant that the Solicitors acted for the Plaintiff and reminded them of the right to seek independent legal advice – Outcome: appeal dismissed with costs on a solicitor and own client basis (the contractually stipulated basis) – judgment below of Deputy Judge Saunders in favour of the Plaintiff stood, including declaration that the Plaintiff was entitled to possession and to exercise the power of sale, and order for payment of secured indebtedness of $175,498,522.16 with interest.
Legal issues: Whether unpleaded defences of misrepresentation and undue influence can be raised for the first time on appeal · Whether the 1st Defendant had any equity to set aside the Legal Charge · Whether the Plaintiff was fixed with constructive notice of any equity to set aside the Legal Charge
Outcome: Appeal dismissed
Cited by 1 case