Bank of China (Hong Kong) Ltd v. Cheung Chun Chun and Another
Read the full judgment text of HCMP 258/2003 on BabelCite. This High Court CFI judgment was delivered on 19 July 2005.
1. The plaintiff is, with effect from 1 October 2001, the successor corporation to the Kwangtung Provincial Bank (“KPB”).
Cites 2 cases
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HCMP258/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO.258 OF 2003 ---------------------------
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--------------------------- Before : Deputy High Court Judge Poon in Court Date of Hearing : 12 July 2005 Date of Judgment : 19 July 2005 ---------------------- J U D G M E N T ----------------------- The parties 1.The plaintiff is, with effect from 1 October 2001, the successor corporation to the Kwangtung Provincial Bank (“KPB”). 2.The 1st defendant is the father of the 2nd defendant and husband of Madam Chan Po Ping (“Madam Chan”). 3.The 1st defendant and Madam Chan are respectively the registered owner of Workshop Unit 14, 6/F, Block A, Hoi Luen Industrial Centre, No.55 Hoi Yuen Road, Kowloon (“the 1st Property”) and Flat H1, 4/F, Block H with Car Park No.22, Lower Ground Floor, Phoenix Court, Nos.5-7 Fessenden Road, Kowloon (“the 2nd Property”). 4.The 1st defendant founded one Kwong Fung Company (“Kwong Fung”) as sole proprietor in about 1976, engaging in the business of manufacturing plastic bags. In about May 1996, Kwong Fung became registered under the 2nd defendant’s name as sole proprietor. But the 1st defendant remained a signatory of Kwong Fung’s bank account with KPB. The other signatory was the 2nd defendant himself. Previous legal charges 5.Between 1986 and 1992, banking facilities had been granted by the Bank of Communications (“BOCOM”) to Kwong Fung upon the security of five legal charges. Their particulars are as follows :
The Legal Charge 6.In about May or June 1996, an application was made to KPB to “re-finance” the banking facilities of Kwong Tung, that is, “switching” the banking facilities from BOCOM to KPB. In the end, KPB granted to Kwong Fung various facilities totaling HK$4.5 million and Trust Receipt with a limit of HK$1 million. The facilities were secured by :
7.The Legal Charge is an all monies mortgage. The defendants and Madam Chan as mortgagors and Kwong Fung as the requesting party jointly and severally covenanted to repay on demand all sums due to KPB from Kwong Fung. 8.Out of the HK$4.5 million facilities granted by KPB, a loan of HK$1.5 million was applied to discharge the then outstanding loan of HK$2.8 million due to BOCOM by Kwong Fung. The shortfall of HK1.3 million was provided by Kwong Fung. Subsequent events 9.By a facility letter dated 21 January 1997, the facilities granted to Kwong Fung were amended. This facility letter referred to the Legal Charge and the Guarantee as security for the amended facilities. The 1st defendant and Madam Chan signed on a letter to confirm, among other things, that the validity of these security documents shall be in full force. The facilities were further amended in April and December 2000. 10.By a partial release and discharge dated 19 December 2000 (“the Partial Release”), the 2nd Property was released. The 1st defendant signed on the Partial Release as confirmor. Clause 3 of the Partial Release provided that nothing contained therein shall prejudicially affect the security of KPB upon the 1st Property, the remaining subject to the Legal Charge, for all monies owing thereunder. 11.By facilities letter dated 3 May 2001, the facilities granted to Kwong Fung were yet further amended. The 1st defendant signed on this facilities letter as mortgagor of the 1st Property to confirm his agreement to and acceptance of the terms and conditions therein. Commencement of proceedings 12.Kwong Fung subsequently defaulted in repayment of the facilities. By letter of demand dated 9 January 2003, the plaintiff demanded Kwong Fung for repayment of the outstanding loan then in the region of HK$1.8 million. No repayment was however made. 13.On 18 January 2003, the plaintiff commenced the present action under Order 88, Rules of the High Court. The 2nd defendant had already been adjudicated bankrupt earlier on 6 January 2003. The proceedings against him were therefore discontinued in about July 2003. 14.On 21 July 2003, the action was ordered to continue as if it had been begun by writ. Relying on the Legal Charge, the plaintiff sought against the 1st defendant monetary judgment of some HK$1.9 million and vacant possession of the 1st Property. (The plaintiff did not seek to rely on the Guarantee.) Defence and counterclaim 15.In the defence and counterclaim, the 1st defendant raised the defence of undue influence. He alleged that the 2nd defendant, in order to induce him to sign the Legal Charge, had represented to him that the signing of the Legal Charge was a mere formality and part of the standard procedure; that the signing of the Legal Charge would not have serious or any consequence adverse to him; and that the 2nd defendant was in a good financial position and would be able to make punctual monthly payments, whereas he was in fact in serious financial difficulties and would not be able to do so. He had habitually reposed trust and confidence in the 2nd defendant and was therefore subject to his undue influence. He complained that the Legal Charge was manifestly disadvantageous to him and that KPB had actual or constructive knowledge of the same. He sought to set aside the Legal Charge. Counterclaim to counterclaim 16.The plaintiff contended in the counterclaim to counterclaim that if the Legal Charge were liable to be set aside on the ground of undue influence, the 1st defendant is still liable to make counter-restitution, by way of equitable compensation and/or by the plaintiff’s subrogation to BOCOM’s rights by repaying the plaintiff the loan of HK$1.5 million referred to in paragraph 8 above. The central issue 17.The central issue arising from the pleadings is : whether the Legal Charge is liable to be set aside on undue influence as alleged. The law 18.For present purposes, it is sufficient to just state the applicable law thus. As between a complainant who alleges that he entered into the impugned transaction with a creditor under the undue influence exerted on him by a dominant party, that transaction is liable to be set aside if :
19.The complainant must first prove undue influence. If he fails, it is pointless to go any further to consider the extent the creditor is affected : Royal Bank of Scotland v. Estridge (No.2) [2001] 3 WLR 1021 at para.101, Bank of China (Hong Kong) Ltd v. Wong King Sing [2002] 1 HKLRD 358 at p.375F-J, Bank of China (Hong Kong) Ltd v. Wong Yuk Ping & Another [2003] 1 HKLRD 1, para.58 at p.20. 20.Here, the father and son relationship between the 1st and 2nd defendants, of itself, does not give rise to any presumption of undue influence : see Chitty on Contracts, 29th edn, Vol.1, para.7-063 at p.546. The 1st defendant therefore bears the burden to prove by evidence the undue influence as alleged. Execution of the Legal Charge 21.Before I proceed to examine the 1st defendant’s evidence, it is convenient to first consider how the Legal Charge was executed. For it is the 1st defendant’s major complaint both in his oral testimony and final submissions. 22.The execution of the Legal Charge was attended by Mr David Ng Kam Cheong (“Mr Ng”), then senior conveyancing clerk of Messrs Ford, Kwan & Co. In his witness statement filed on 4 July 2004, which he adopted as evidence-in-chief, Mr Ng described the execution thus :
23.In his oral testimony, Mr Ng went on to explain that at the time, other than the Legal Charge, the 1st defendant had also signed on the Guarantee. The 1st and 2nd defendants and Madam Chan also provided their specimen signatures in a letter issued by Messrs Ford, Kwan & Co. dated 1 August 1996 to KPB. He confirmed that he had explained these additional documents to them before they were executed. Incidentally, Mr Ng was also the clerk who attended the execution of the Partial Release by the 1st defendant. Mr Ng testified that he had explained the Partial Release to the 1st defendant before execution. He said it was necessary to obtain the 1st defendant’s consent and signature of the Partial Release because under Clause 3 thereof, the 1st defendant would remain responsible solely under the Legal Charge. 24.Under cross-examination, it was put to Mr Ng that he did not explain the contents of any of the security documents to the 1st defendant, that he only told the 1st defendant that it was a mere formality and that he asked the 1st defendant to sign at various places. These Mr Ng all denied. 25.I have carefully considered Mr Ng’s evidence and the way he testified. I am of the view that he has not been shaken a bit under cross-examination. I find him a truthful and reliable witness and accept his evidence accordingly. Rejecting the 1st defendant’s version 26.I now turn to the 1st defendant’s evidence. In his witness statement filed on 31 December 2003, which he adopted as evidence in chief at trial, the 1st defendant had this to say :
27.The 1st defendant’s evidence does not stand up to a closer scrutiny. 28.First, I have considerable doubt if the 1st defendant retired completely from Kwong Fung’s business since 1996 and left it to the 2nd defendant as alleged. According to the credit report prepared by an officer of KPB at the time of Kwong Fung’s application (“the Credit Report”), the 2nd defendant was registered as Kwong Fung’s sole proprietor in 1996 because, among other things, the 1st defendant had to spent most of his time in the Mainland and did not have the spare capacity to deal with its business in Hong Kong. Such information in all probabilities could only have come from either of the defendants. And the 1st defendant has not challenged its accuracy. Further, his story of retirement did not sit well with his oral evidence that in 1996, he used to spend about 10 days per month in Kwong Fung’s factory (run in cooperation with some other entity); and (2) the fact that he remained as one of Kwong Fung’s signatories for its bank account. 29.Second, I find his allegation that he reposed trust and confidence in the 2nd defendant hollow. By 1996, the 1st defendant had about 20 years of experience in running Kwong Fung’s business, which far exceeded the 6 years of experience that the 2nd defendant had. More importantly, on the evidence before me, the operations of Kwong Fung had all along been financed by facilities raised by way of security upon the 1st and 2nd Property. In other words, Kwong Fung was in substance supported by the 1st defendant and Madam Chan financially. Would the 1st defendant in such circumstances repose trust and confidence in his son as alleged? I think not. 30.Third, there is no substance in his allegation that the 2nd defendant had made the misrepresentations to him. To recap, there were three misrepresentations :
31.The 1st defendant is no stranger in providing all monies mortgages on the strength of the 1st Property in order to finance Kwong Fung’s operations. See paragraph 5 above. He must have known what an all monies mortgage is and its effect. It cannot be a mere formality or standard procedure as alleged. In fact, he confirmed in his oral testimony that he knew he was signing a mortgage and that by signing it, he attracted certain legal responsibility. Thus his evidence on the 1st and 2nd representations cannot be true. As to the 3rd representation, it is contradicted by the Credit Report. Indeed, as rightly pointed out by Mr Ng, counsel appearing for the plaintiff, how would KPB have provided the facilities if Kwong Fung was not financially sound? 32.Fourth, the 1st defendant’s case is inconsistent with his conduct subsequent to the execution of the Legal Charge. If his story were true, he would not have agreed to the various amendments of the facilities and the Partial Release. See paragraphs 9 to 11 above. 33.Finally, the 1st defendant said he knew that if Kwong Fung defaulted, the plaintiff would be entitled to recover vacant possession of the 1st Property. But he complained that neither the 2nd defendant nor the plaintiff had explained to him that the Legal Charge was an all monies mortgage. In light of my acceptance of Mr Ng’s evidence on the execution of the Legal Charge, I reject this complaint. I find that the defendant knew that he was providing the 1st Property as security under the Legal Charge for the banking facilities to be granted by KPB to Kwong Fung and he was fully aware of the extent of his liability under the Legal Charge before execution. 34.Having considered carefully his evidence, I am firmly of the view that the 1st defendant is a poor and unreliable witness. I have no hesitation to reject his version of the events. No misrepresentation or undue influence 35.For the above reasons, I find that the 1st defendant did not execute the Legal Charge under any misrepresentation or undue influence as alleged or at all. His case fails in limine. It is therefore not necessary to go on to consider the question of notice, actual or constructive, on the part of KPB or indeed any further issues arising from the pleadings. Outstanding indebtedness 36.According to Mr Ho Yat San, officer of the plaintiff’s Retail NPL Division of Special Assets management Department, as at 19 May 2004, the outstanding indebtedness due from the defendants were HK$2,128,401.50, comprising of :
37.Mr Ho’s evidence is not challenged by the 1st defendant. I accordingly accept it in full. Conclusion 38.I will therefore enter judgment in favour of the plaintiff against the 1st defendant for :
39.I will further dismiss the 1st defendant’s counterclaim and make no order on the plaintiff’s counterclaim to counterclaim. 40.I see no reason why costs should not follow the event. Thus there will be an order nisi that the plaintiff shall have the costs of the action, including any costs reserved, to be taxed if not agreed.
Mr Kenneth W.H. Ng, instructed by Messrs Anthony Chiang & Partners, for the Plaintiff Cheung Chun Chun, the 1st Defendant, in person | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||