Read the full judgment text of HCMP 004362/2003 on BabelCite. This High Court CFI judgment was delivered on 28 February 2008 before Yam J.
Civil law – mortgage – legal charge – personal guarantee – undue influence – non-commercial surety – misrepresentation – solicitor's duties – Etridge guidelines – Hong Kong Association of Banks Directions – Law Society Guidelines – third party proceedings – Conveyancing and Property Ordinance (Cap 219) s.2 – High Court Ordinance (Cap 4) s.49(1)(b) – Royal Bank of Scotland v Etridge (No.2) – China State Bank v Fung Chin Kan – whether all-monies legal charge invariably incorporates personal guarantee – whether 'legal charge' title misleading where deed also contains personal covenant by chargor for all monies owed by borrower – sister-sureties induced by brother to mortgage jointly-owned family home as security for brother's company Forkids Toys Limited – SARS period 2003 – general banking facilities of HK$2.7 million granted against property worth HK$1.85 million – solicitors acting for bank, borrower, and sureties sent pre-execution documents to borrower's fax rather than to sisters – 20-30 minute joint meeting with all four parties – warning notice and Chinese confirmation documents contained undeleted options suggesting sisters were mortgagors only – solicitor had Target Search showing multiple actions against Forkids but did not disclose – Bank's letter to solicitors described borrower's indebtedness as 'nil' without qualification – undue influence defence abandoned at trial in favour of misrepresentation and non-understanding – whether bank put on inquiry when non-commercial surety offers charge – whether solicitors fell short of Etridge core minimum advice – whether HKAB Directions and Law Society Guidelines complied with – court set aside legal charge, dismissed bank's claim, and entered judgment for sisters against third party solicitors – costs to sisters against bank and third party – Court of Appeal dismissed appeal in CACV 94/2008 and CACV 96/2008 on 7 May 2009 – legal charge ought to be renamed 'Mortgage/Legal Charge and Guarantee' to reflect its true effect
Legal issues: Whether the sisters could avoid the legal charge on grounds of misrepresentation and non-understanding · Whether a 'legal charge' must invariably include a personal guarantee of the chargor · Whether the Bank and solicitors complied with HKAB Directions and Law Society Guidelines · Whether the Court of Final Appeal in China State Bank v Fung Chin Kan had overruled the Court of Appeal's criticism of the all-monies legal charge practice
Outcome: Plaintiff's claim against the 1st and 2nd defendants dismissed. Legal charge dated 24 June 2003 executed by the sisters set aside. Judgment for the 1st and 2nd defendants against the third party in the third party proceedings. Costs to the 1st and 2nd defendants against the plaintiff and the third party respectively. Appeal by the Plaintiff and Third Party to the Court of Appeal dismissed.