Standard Chartered Bank v. Li Wai Ping and Another

HCA10587/2000
& HCA3575/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10587 OF 2000

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BETWEEN

AND BETWEEN

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BETWEEN

AND BETWEEN

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(By original writ and order to carry on)

(Consolidated by the Order of Mr Registrar C. Chan dated 9 May 2005)

Before : Hon Poon J in Court

Dates of Hearing : 21–25, 28–30 June, 2, 5 July and 14 October 2010

Date of Judgment : 17 February 2011

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JUDGMENT

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A. ACTIONS

1.The 1^st and 2^nd defendants are husband and wife. The 3^rd defendant is their eldest son. I will refer to them as the Husband, the Wife and the Son individually and the Defendants collectively. The 4^th defendant was the solicitors instructed by the plaintiff, SCB, in connection with the Guarantee (defined below), the subject matter of these proceedings. I will call them the Solicitors.

2.Under a facility letter dated 3 October 1997 (“the 1997 Facility Letter”), SCB granted to Peace Hill Development Limited (“Peace Hill”) various banking facilities up to the limit of US$2.6 million, including a fixed loan of US$1.1 million to be used by Peace Hill to finance the purchase of Offices A and B, 11/F, Chun Wo Commercial Centre, 23-29 Wing Wo Street and 26 Wing Kut Street, Hong Kong (“the Property”). The facilities were secured by, among other securities, a joint and several personal guarantee executed by the Defendants, limited to the principal amount of US$2.6 million plus interest and SCB’s costs and other charges and expenses dated 8 October 1997 (“the Guarantee”). The Defendants executed the Guarantee at the meeting (“the October Meeting”) with the handling solicitor, Mr Pang Chee Hoong (“Mr Pang”), who was assisted by a conveyancing clerk, Mr Yeung Sau Loi (“Mr Yeung”).

3.Peace Hill subsequently defaulted. Litigations then followed.

4.SCB obtained judgment against Peace Hill in the sum of HK$7,071,696.46 with interest and an order of possession of the Property in HCMP6556/2000 on 1 March 2001. The Property was recovered in April 2001. In October 2003, SCB sold the Property which only yielded a net proceed of HK$2,577,508.07.

5.On 21 December 2000, SCB commenced HCA10587/2000 against the Defendants on the Guarantee. On 20 August 2001, it obtained summary judgment against the Husband for HK$6,953,803.71 with interest and costs. The Husband was subsequently adjudicated bankrupt on 10 December 2001.

6.The Wife and the Son denied liability. They alleged that Peace Hill was beneficially owned and controlled by the Husband. They signed the Guarantee because of undue influence exerted by him, of which SCB had constructive knowledge. But SCB failed to take steps to, among other things, satisfy that they signed the Guarantee freely and with full knowledge of its nature, terms and effect. The Wife further alleged that at the October Meeting she was induced by the misrepresentation of Mr Pang that it was a mere formality to sign some documents for Peace Hill to obtain a mortgage loan from SCB. She also pleaded non est factum. Although the Son also alleged that Mr Pang did say that it was a mere formality, he did not rely on any defence of misrepresentation. The Wife and the Son both counterclaimed for an order of rescission of the Guarantee. She further claimed against SCB for damages for misrepresentation.[1]

7.In light of the allegations raised by the Wife and the Son, SCB commenced HCA3575/2003 against the Solicitors for breach of contract/retainer and or negligence. SCB’s claim against the Solicitors is made on the alternative basis that the court finds in favour for the Wife and the Son but without prejudice to its claims against them.

8.The Solicitors denied any breach of duty or negligence. It alleged that at the October Meeting Mr Pang duly explained the effect of the Guarantee and other documents signed to all the Defendants and that the Solicitors represented SCB only, and invited them to seek independent legal advice, which they declined. There was no undue influence. The Wife and the Son signed of their own free will and with a proper understanding of the Guarantee. The Solicitors were in any event unaware of circumstances such as to put them on notice or constructive notice of potential undue influence. There was no negligence or misrepresentation as alleged. Even if the Wife was under a misapprehension of the effect of the Guarantee, the Solicitors were unaware of it and she signed it of her own negligence, so that non est factum is precluded.

9.The Wife claimed against the Solicitors for indemnity or damages in respect of SCB’s claim, on the basis of negligence in the making of the misrepresentation by Mr Pang.[2]

10.By a consent order dated 9 May 2005, the two actions were consolidated. The trial eventually came before me.

11.At the trial, SCB called 4 officers : Mr Augustine Chan Wing Hang (“Mr A. Chan”), Relationship Manager of the Corporate Banking Group, Mr Chan Kin Man, Senior Credit Documentation Manager, Risk Control (“Mr M.K. Chan”), Mr Tong Kai Cheong, Senior Relationship Manager, Corporate Banking Group (“Mr Tong”), and Ms Leung Yee Chun, Head of Hong Kong, Group Special Assets Management (“Ms Leung”). The Wife gave evidence and called the Husband, Mr Lie Yoe Cheong (“Mr Lie”) and Ms Li Pek Hwa (“Ms Li”). Mr Lie was the general manager of Peace Hill and Ms Li, accounts clerk, at the material times. Mr Lie is related to the Husband. They have a common grandfather but different grandmothers. The Son gave evidence but called no witness. The Solicitors called Mr Pang and Mr Yeung.

B. MAIN ISSUES

12.The main issues as agreed between the parties are :

1. The beneficial ownership and management control of Peace Hill :

(1) whether the Husband was the sole beneficial owner of the majority of the shares in, and a shadow director having whole effective control of, Peace Hill to the exclusion of the Wife and the Son; and

(2) even if so, whether the Husband’s exclusive beneficial ownership and management control was made known to SCB or the Solicitors.

2. Whether each of the Wife and the Son was ignorant of the nature and terms of the Guarantee.

3. Whether each of the Wife and the Son was subject to the undue influence of the Husband.

4. If so, whether SCB or the Solicitors should have been “put on inquiry” and thereby treated as having constructive notice of the Wife and the Son’s potential claims to set aside the Guarantee.

5. If so, whether SCB had taken reasonable steps to ensure that the Wife and the Son’s agreement to execute the Guarantee had been properly obtained :

(1) whether the Solicitors were required by the retainer (expressly or impliedly) or otherwise by the law to advise each of the Husband, the Wife and the Son separately of the following :

a. the desirability of having independent legal advice prior to his/her execution of the Guarantee;

b. that his/her liability under the Guarantee was limited to US$2.6 million together with interest and other charges and expenses specified in the Guarantee;

c. that enforcement of the Guarantee may result (subject to the said limit of US$2.6 million) in his/her having to pay all monies owed by Peace Hill to SCB; and

d. that neither SCB nor the Solicitors had acted as his/her financial or legal advisor in explaining the aforesaid;

(2) in any event,

a. whether Mr Pang had so advised the Wife and the Son or just let them sign the Guarantee, the Acknowledgement and the Certificate without any explanation of the same; and

b. if Mr Pang had so advised the Wife and the Son, whether the fact that the Husband was present in the same room when such advice was given per se rendered the advice ineffective or inadequate.

6. Even if Mr Pang had not so advised the Wife and the Son,

(1) whether Mr Pang had misrepresented that the Guarantee was a mere formality for Peace Hill to obtain a mortgage loan from SCB to purchase a property;

(2) if so, whether such misrepresentation :

a. caused the Wife to be mistaken that the Guarantee was merely a document relating to the business of Peace Hill requiring her signature as a formality; and

b. induced her to sign the Guarantee;

(3) if so, whether the Wife acted negligently in signing the Guarantee, and whether any such negligence precludes the alleged defences of mistake and non est factum.

7. If Mr Pang made the representation at Issue 6(1) above;

(1) whether the Solicitors owed to the Wife a duty of care in respect of the representation;

(2) whether the Wife reasonably relied upon the alleged representation in signing the Guarantee;

(3) if a duty of care was owed, whether it was breached; and

(4) if so, whether any loss resulted to the Wife.

8. If the Guarantee should be upheld, what is the amount still due from Peace Hill to SCB.

9. If the Solicitors were obliged to advise the Wife and the Son as set out in Issue 5(1) above but had failed to do so and the Guarantee should be set aside as against the Wife and/or the Son, what loss and damage has SCB suffered which was caused by the alleged failure.

13.Issues 1 to 3 are germane to the principal defence of undue influence. Issues 4 and 5 arise only if undue influence is proved. Issue 5 also goes to the scope of SCB’s instructions to the Solicitors and the Solicitors’ compliance with such instructions. Issues 6 and 7 concern the question of misrepresentation. Issue 7 in particular touches upon the duty of care, if any, that the Solicitors owed to the Wife. Finally, Issues 8 and 9 deal separately with quantum if liability is established against the Wife and the Son or the Solicitors, as the case may be.

14.All the issues on liability are fact-sensitive, which can only be resolved after a careful analysis of all the evidence presented before me.

C. BURDEN OF PROOF AND ASSESSMENT OF CREDIBILITY

15.Two preliminary points are to be noted before I proceed to evaluate the evidence : burden of proof and assessment of credibility.

C.1. Burden of proof

16.It is well established that the husband and wife relationship does not fall within the categories where undue influence is presumed as a matter of law, that is, the so-called Class 2A cases as categorized by Slade LJ in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, at p.953 and adopted by Lord Browne-Wilkinson in Barclays Bank Plc v O’Brien [1994] 1 AC 180, at p.189 : see Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773, per Lord Nicholls at para.19 at p.797. So the Wife has to prove undue influence as alleged. Of course, she needs to prove her case on misrepresentation and non est factum as well.

17.Although a parent and child relationship generally falls within the Class 2A category, it is no longer the case if the child is mature or emancipated from the parental influence, which is a question of fact depending on the circumstances of each case : see Enonchong on Duress, Undue Influence and Unconscionable Dealing, 2006 Edn, para.10-111 at pp.125-126. Normally, the presumption lasts only a short time after the child has attained 21 : see Re Pauling’s Settlement Trusts [1964] 1 Ch 303, per Willmer LJ at p.337. Initially, the Son sought to rely on the presumption of undue influence in his pleadings. However, Mr Liu, his counsel, fairly conceded in the closing submissions that he would no longer do so. The concession must be right because the Son was already 28 when he signed the Guarantee. Thus, like his mother, the Son has to prove undue influence as alleged.

18.The evidence required to discharge the burden of proving undue influence, in Lord Nicholls’s words, depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case : Etridge, ibid, at para.13 at p.796. The focus is whether the evidence justifies the inference that, on a balance of probabilities, the impugned transaction was procured by undue influence, that is to say, by an abuse of the allegedly dominant party of the trust and confidence reposed in him by the alleged subservient party : Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579, per Lord Scott, NPJ at para.34 at p.596.

C.2. Assessment of credibility

19.As is typical of most of the undue influence cases, the credibility of the protagonists involved in the impugned transaction is most essential. In assessing their credibility, I must have regard to all the relevant circumstances, including the inherent probabilities or improbabilities of one’s story, the contemporaneous documents or any evidence, which is undisputed or indisputable, tending to support or contradict one account or the other and the overall impression of the characters or motivations of the witnesses : See In re B (Children) [2009] 1 AC 11, per Baroness Hale, at para.31 at p.24.

20.With these two general points in mind, I now turn to the evidence.

D. AN OVERVIEW

21.I will begin with an overview of the evidential landscape. The narrative is taken from the Statement of Agreed Facts prepared by the parties[3] and supplemented by facts which are largely uncontroversial. I will also highlight the major factual disputes where appropriate.

D.1. The Defendants’ personal background

22.The Husband was born in the Mainland China on 24 August 1942. He came to Hong Kong in 1961. He had engaged in the log/plywood business since 1969 and had throughout the years established himself as a seasoned and successful businessman in that business. Over the years, he had been involved in various companies including Peace Hill, which was set up in 1991. He said at all material times since late 1991 he had held himself out as the Chairman (董事長) of Peace Hill. He does not understand English.

23.The Wife was born in Indonesia on 18 July 1947. She was raised in a traditional Chinese family in Indonesia and received her education there, which was conducted in Bahasa Indonesian. She therefore does not understand English. She married the Husband in August 1968 and later in the same year moved to Hong Kong and had since settled here. She claimed to be a mere housewife all along.

24.The Son was born in Hong Kong on 24 April 1969. Between August 1987 and June 1991, he studied at the University of Southern California, USA. After graduating with a degree in accounting, he joined Peace Hill at the age of 22. He continued to work for Peace Hill until after these proceedings arose when he joined AIA as an assisting training manager. He lived with his parents at Cumine Court, King’s Road, Hong Kong until 1995. He then moved to another property which was owned by Peace Hill until 1998. In 1998, he married and lived at the matrimonial home at Tanner Road, North Point, which was purchased jointly with his wife. Given his education background, the Son is conversant with the English language.

25.It is common ground that both the Wife and the Son were at the material times financially dependent on the Husband’s business.

D.2. Beneficial ownership of Peace Hill and other companies

26.As already alluded to, Peace Hill was established in 1991. On the Defendants’ case, it was set up to take over the plywood business of Youngsun Development Limited (“Youngsun”), which the Husband said he incorporated in 1988 and wholly owned until September 1994. Initially, the two shareholders of Peace Hill were the Son and his younger sister, Ms Evelyn Li Yie Wei (“the Daughter”) as to 80% and 20% respectively. They were the two directors as well. It is the Defendants’ case that the Husband contributed all the capital and that the Son and the Daughter were holding the shares for and on his behalf. He was Peace Hill’s beneficial owner at its incorporation. That does not appear to be disputed by SCB or the Solicitors.

27.On 26 September 1994, the Son transferred 40% of his shares to the Daughter and the remaining 40% to Brizon Holdings Limited (“Brizon”), a BVI company which, the Husband alleged, represented the interest of his relatives in Indonesia. In May 1996, all the 60% shares held under the Daughter’s[4] name were transferred to T&T (Nominees) Company Limited (“T&T”), which on the Husband’s case held the shares for and on his behalf. So, on the Defendants’ case, the Husband’s beneficial ownership in Peace Hill had since been reduced to 60%, which remained the case in October 1997.

28.It was also on 26 September 1994 when the Husband and the Wife transferred their shares (39% and 31% respectively) in Youngsun to the Daughter whereas the Son transferred his (30%) to Brizon. Since then, the Husband’s interest in Youngsun, according to the Defendants’ case, was reduced to 70%.

29.On SCB’s and the Solicitors’ case, Youngsun and Brizon, like Peace Hill, were at all material times owned by the Husband beneficially.

D.3. The Defendants’ personality and relationship and their role in Peace Hill

30.Two main points underlie the defence of undue influence : (1) the Defendants’ personality and relationship; and (2) their respective role and involvement in Peace Hill.

31.On the first point, the Defendants’ case is that the Husband had a domineering personality. The Wife and the Son respected him, reposed completer trust in him and were even subservient to him. SCB and the Solicitors contended that their relationships were no more than an ordinary husband and wife and father and son relationship.

32.On the second point, the Defendants’ case is that the Husband had absolute control over Peace Hill, although as already seen, he only owned 60% of its shares at the material times. The Wife was a mere housewife who had no interest or involvement whatsoever in Peace Hill. The Son carried the title manager director but was only responsible for sales and marketing. SCB and the Solicitors contended that Peace Hill was a 100% family based business owned beneficially by the Husband, who was responsible for its overall supervision but not to the exclusion of his wife or son. The Wife was a hidden director who had been actively assisting the Husband in his business for years. The Son was responsible for Peace Hill’s administration and finance. At the time of the Guarantee, the Husband was considering the possibility of the Son succeeding him in Peace Hill.

33.Since May 1996, Peace Hill’s directors were the Son and T&T. Neither the Husband nor the Wife was a director. But they, like the Son, were authorized signatories. All the Defendants had executed guarantees for the debts and liabilities of Peace Hill and related companies to other banks. In July 1994, Kwong On Bank provided facilities of US$2,283,000 to Peace Hill, which were secured, among other things, by a joint and several personal guarantee by the Husband and the Wife. In August 1997, that is, about two months before the Guarantee, BRI Finance Ltd provided facilities of US$5,000,000 to Peace Hill, Youngsun and Excel Profit Development Ltd (“Excel Profit”), a company which, on the Husband’s case, was beneficially owned by his relatives in Indonesia. The facilities were secured by, among other things, a joint and several guarantee by the Husband and the Wife. In the same month, Ka Wah Bank also provided facilities of US$5,850,000 to Peace Hill and Excel Profit, secured by, among other things, a joint and several guarantee by the Defendants.

34.The Wife alleged that she signed whatever documents that the Husband asked her to sign because of complete trust in him, even without any understanding of what the documents were. The Son alleged that he signed the other guarantees under the same circumstances of the present case except that the bankers took the document to the Husband’s office without giving any advice as to the extent of liability and he was unduly influenced by his father to sign them.

D.4. Events leading to the Guarantee

35.Youngsun and Peace Hill used to bank with Kwong On Bank in 1991. Mr A. Chan, then market officer, was in charge of their accounts. In 1992, Mr A. Chan joined SCB. In around mid-1997, Mr A. Chan introduced Peace Hill to Mr Edison Lam (“Mr E. Lam”) a fellow Relationship Manager of the Corporate Banking Group in SCB. At that time, Peace Hill was contemplating the purchase of the Property, which was to be used as its offices. Negotiations between Peace Hill and SCB for provision of facilities for buying the Property then ensued. It is the Defendants’ case that the negotiations were conducted between the Husband on behalf of Peace Hill and Mr E. Lam on behalf of SCB exclusively; that the Son’s role was limited to supplying certain financial information about Peace Hill to SCB and that he did not participate in the negotiations.

36.In about July or August 1997, the Wife’s sworn daughter, Ms Lily Lau, who was an officer with Belgian Bank, referred Peace Hill to Mr Pang, then a solicitor in the employ of the Solicitors. He received a fax from Ms Lau with the provisional sale and purchase agreement for the Property, which was signed by the Husband. She called him and told him that the Li family wanted to instruct the Solicitors to handle the sale and purchase of the Property. The Solicitors began to act for Peace Hill in that connection on 5 August 1997. Mr Pang was assisted by Mr Yeung.

37.On 8 August 1997, the Husband, the Son and Mr Lie attended Mr Pang’s office (“the August Meeting”). The Son signed the formal sale and purchase agreement of the Property on behalf of Peace Hill. On the same day, Peace Hill’s directors held a board meeting. According to the minutes signed by the Son as chairman of the meeting, he and T&T, represented by Mr Ho Kwok Cheong (“Mr Ho”), unanimously resolved that the formal sale and purchase agreement for the Property be rectified, confirmed and approved and that the assignment be executed under seal by the Son.

38.On 13 August 1997, the Son provided further financial information of Peace Hill to Mr E. Lam as requested by him. On 25 September 1997, Mr E. Lam faxed a facility proposal to Peace Hill for the Husband’s attention.

39.Mr E. Lam and Mr Frankie Chow, Senior Manager for Trade Products Marketing, Corporate Banking Group, then prepared an “Application for Limits Part 2” dated 26 September 1997 (“the Limit Application”), recommending approval for Peace Hill’s application for facilities. Their recommendation was approved. As will be seen in Part F below, the Limit Application, which is heavily relied on by SCB and the Solicitors, sheds considerable light on the veracity of the Defendants’ case.

40.On 27 September 1997, SCB gave instructions to the Solicitors, who were retained at the recommendation of Peace Hill, to prepare a First Legal Charge over the Property.

41.On 30 September 1997, the directors of Peace Hill, including the Son, resolved that various accounts be set up with SCB, that the accounts be operated by any two of the Defendants save and except for export bills transactions, the bills account could be signed by any one of them.

42.On 3 October 1997, SCB issued the 1997 Facility Letter to Peace Hill for the Husband’s attention. Under the 1997 Facility Letter, SCB granted to Peace Hill various banking facilities up to the limit of US$2.6 million, including a fixed loan of US$1.1 million to be used by Peace Hill to finance the purchase of the Property. The facilities were to be secured by, among other securities, the Guarantee to be executed by the Defendants.

43.Separately, SCB wrote to the Solicitors for the attention of Mr Pang, instructing them to prepare, arrange for and attend to the due execution of the documents relating to the provision of the facilities under the 1997 Facility Letter including (a) the Guarantee and (b) a Form of Third Party Acknowledgement on SCB’s standard forms (“the Acknowledgement”) to be executed by the Defendants.

44.The requirement for the Acknowledgement was introduced by SCB in about 1997 as one of the necessary documents to be executed by a surety who provided security (including personal guarantee) in favour of SCB to cover the indebtedness of a third party. It required a third party surety to acknowledge and confirm that it had been pointed out to him at a personal meeting in the absence of the borrower :

(1) the desirability of having independent legal advice prior to his execution of the security;

(2) that his liability under the security for the obligations of the borrower to SCB, to the extent that there was an applicable limit stated in the relevant security, was limited to the amount specified in the security, or to the extent that there was no applicable limit, was unlimited in respect of all monies owing by the borrower to SCB, in either case, together with interest and other charges and expenses specified in the security; and

(3) that enforcement of the security might result (subject to any applicable limit) in his having to pay all monies owing by the borrower to SCB and SCB appropriating the charged property to discharge all monies owing by the borrower.

The Acknowledgement also required the third party surety to acknowledge that the meeting was for clarification only and that he understood that neither SCB nor its representatives had acted as his financial or legal adviser in providing the said explanations.

45.The three forms of Acknowledgement provided to the Solicitors were unmarked, indicating to them that SCB had not by its officers conducted the required personal meetings with the third party sureties, that is, the Defendants. It is SCB’s case that it was contemplated that the Solicitors should conduct a personal meeting with each of them in the absence of the borrower for the purpose of pointing out to him/her the matters to be confirmed in the Acknowledgement.

46.On 7 October 1997, Mr Yeung faxed to the Husband/the Son a set of documents regarding the facilities provided under the 1997 Facility Letter for their perusal, including the General Customer Agreement, board minutes, an unsigned copy of the Guarantee and three forms of Acknowledgements. He also sent a letter to SCB for the attention of Mr M.K. Chan, enclosing for SCB’s approval drafts of, among other things, the Guarantee and the Acknowledgments to be executed by the Defendants.

D.5. The October Meeting

47.On 8 October 1997, the Defendants, Mr Lie, Mr Ho representing T&T attended the October Meeting before lunch. The Son signed on behalf of Peace Hill (a) the General Customer Agreement; (b) Peace Hill’s board minutes (as chairman) for the acceptance of the facilities provided under the 1997 Facility Letter which stated in paragraph 9 that he was to be regarded as interested in the transaction to the extent that he was the son of his parents; (c) assignment of the Property; (d) legal charge of the Property; and (e) letter of warranty and undertaking in respect of the Property. All the Defendants signed the Guarantee and 3 separate Acknowledgements and a Certificate of Independent Legal Advice (“the Certificate”).

48.What actually took place at the October Meeting is hotly disputed. In brief, the Defendants alleged that it was a very short meeting and that Mr Pang told them that the signing of the documents presented at the Meeting, including the Guarantee, was a mere formality. He did not explain any of the documents to them at all. Such allegations were denied by Mr Pang and Mr Yeung.

49.It should be borne in mind that it is not the Wife’s case that she was persuaded or pressured by the Husband to sign the Guarantee or other documents at the October Meeting. Her case is she did not even know that she had signed the Guarantee as it was neither explained to her by the Husband or Mr Pang. There was a long practice that she would, based on her absolute trust on her Husband, sign any document which he presented her to sign without understanding or enquiring into what that document was. The Husband abused that trust by asking her to sign the Guarantee, which was not a usual document of Peace Hill but a personal guarantee which imposed substantial liabilities upon her personally.

50.The Son’s case is a little different. He did not know that he had to sign the Guarantee until he actually saw the word “guarantor” on the document at the October Meeting. He signed it nevertheless because of the pressure and undue influence of his father. His knowledge that he had to sign the Guarantee is perhaps the reason why he did not advance any defence based on misrepresentation or non est factum as his mother did.

D.6. After the October Meeting

51.What took place after the October Meeting is basically not controversial.

52.At about 2 p.m. on 8 October 1997, the Solicitors faxed to SCB a letter, reporting that the documents relating to the facilities including the Guarantee and the Acknowledgements had been duly executed by the Defendants and were held by the Solicitors subject to SCB’s order and that SCB might permit the drawdown and operation of the facilities. The Solicitors also sent a letter dated 8 October 1997 to Peace Hill for the attention of the Son enclosing, as requested, “one set of copies of the relevant documents in relation to [the Property]”.

53.According to Mr M.K. Chan, he received the security documents including the Guarantee and the Acknowledgements on or after the 8 October 1997.

54.On 9 October 1997, the fixed loan under the 1997 Facility Letter was drawn down. The purchase of the Property was also completed.

55.On 16 October 1997, SCB sent a letter to Peace Hill for the attention of the Husband, referring to “our recent discussions” and confirming that the terms of the facilities provided were to be varied as set out therein. The variations are immaterial for present purposes.

56.On 14 December 1998, SCB sent a facility letter to Peace Hill for the attention of the Husband, renewing the trade finance and what was then outstanding of the fixed loan with a revised repayment schedule.

57.In January 1999, Peace Hill’s account was transferred to the unit under the supervision of Mr Tong. Peace Hill’s account was first assigned to Ms Katherine Mok, a Relationship Manager in Mr Tong’s unit and then further assigned to Ms Julia Pang, another Relationship Manager of Mr Tong’s unit in October 1999.

58.In the meantime, Mr E. Lam died on 26 March 1999.

D.7. The 2000 Facility Letter and subsequent meetings

59.By a letter dated 10 June 1999 signed by the Son, Peace Hill requested SCB to work out a new package converting the fixed loan from US currency to HK currency. In January and February 2000, SCB reviewed the facilities, which cumulated in a facility letter dated 15 February 2000 (“the 2000 Facility Letter”). By the 2000 Facility Letter, SCB, with a view to restructuring the repayment of HK$7,900,000, the then outstanding amount of the fixed loan advanced under the 1997 Facility Letter, agreed to make available to Peace Hill a fixed loan facility of the same amount of HK$7,900,000. (For the purpose of the facilities granted under the 2000 Facility Letter, Mr Chris Chan, Senior Credit Analyst and Ms Julia Pang, Relationship Manager had prepared an application, which on its face, was a substantial reproduction of the Limit Application.) At the board meeting held on 6 March 2000, chaired by the Son, Peace Hill’s directors resolved to accept the facilities provided under the 2000 Facility Letter.

60.Repayment of the fixed loan became overdue subsequently. On 10 October 2000, Ms Julia Pang met the Husband and the Son at Peace Hill’s office. The Husband requested to extend the tenor of the fixed loan, which was declined. On the following day, Peace Hill settled the overdue balance.

61.On 15 November 2000, Mr Tong and one of his colleagues met the Son at Peace Hill’s office again. The Son requested to extend the tenor of the fixed loan, which was refused. Mr Tong then gave the Son a demand letter addressed to Peace Hill, demanding for repayment of the outstanding sum of HK$6.92 million with interest.

62.There was a third meeting between Mr Tong and Ms Julia Pang for SCB and the Son for Peace Hill on 24 November 2000. The bank officers asked the Son to provide Peace Hill’s interim financial and cash flow information, which he refused. The Son then requested for an extension of the tenor of the fixed loan, which was declined. The bank officers threatened legal action if Peace Hill failed to cover the default repayment. The Son promised to get back to SCB later that day on the overdue amount. But Peace Hill failed to settle the overdue repayment. When another bank officer called him at about 6 p.m., the Son refused to give SCB a repayment schedule.

63.On 27 November 2000, Ms Julia Pang had a fourth meeting with the Son. He agreed to provide various financial information of Peace Hill and would confirm whether the overdue amount would be settled in those few days and arrange for SCB to meet with the Husband.

64.In December 2000, Ms Leung took over the management of Peace Hill’s account. She also met with the Son subsequently.

65.Having sketched out the background circumstances, I now focus the discussion on the two major points underlying the case of undue influence, the first of which is the Defendants’ personality and relationship.

E. THE DEFENDANTS’ PERSONALITY AND RELATIONSHIP

E.1. The Defendants’ version

66.In his witness statements, the Husband did not say much about his, the Wife’s or the Son’s personality. While in the box, he said the Son had a character similar to the Wife’s, which was very weak. The Son would just follow whatever he said, just like his mother. He was naïve, passive and relied heavily on others. He did not have the necessary qualities or capabilities of a businessman.

67.In her first witness statement dated 2 April 2003, the Wife said that she had always deeply respected her husband and been deferential to his wishes. He had always been taken care of her since marriage. She was financially dependent on him. He had had the management and control of the family expenditure. She had at all times relied, without question or enquiry, upon the information given to her by him as to financial matters generally and had deferred to his judgment in regard thereto.

68.In her supplemental witness statement dated 10 November 2009, the Wife added she was bought up in a traditional Chinese family in Indonesia. She was the youngest daughter and used to be protected by her parents and siblings. She respected her father, the head of the family, who made almost every decision for her before she got married. Because of her upbringing, she used to listen to the head of the family. After marriage, she listened to her husband, the head of the family, and followed his decisions as she did before marriage. Her husband, whom she married at 21, had been the only man she could trust and rely on after her father’s death in 1992. She had developed her trust and confidence in him over the past 30 years. She then went on to say :

“6. My husband liked others to listen to him and follow his instructions but he seldom listened to others. It may be because he is the eldest son of the family. He used to order the others to listen to his opinions, whether his family members or his subordinates. My husband was always dominant at home or outside while the others (including me and my son) were his followers over the years. We always get along in this way at home and therefore family members have been used to it.

7. Based on my trust and respect to my husband, I always follow the decisions of my husband. Unless my husband’s decisions were obviously harmful to me or made me feel very uncomfortable, I would not oppose my husband’s decisions and would follow his instructions and decisions without asking anything.

8. My husband did not allow anyone to change his ideas. Some people might think that my husband was a dictator. I would describe my husband as having two faces: being generous and open to my and my son’s opinions in the presence of business associates while being harsh and authoritative in the absence of them.”

69.The Son said in his first witness statement dated 2 April 2003 that he had always regarded his father to be his idol and role model because he was, in his eyes, a very knowledgeable, capable, reliable, authoritative and successful person with high regard in the society. His father had taken care of his upbringing and funded his education. He respected his father deeply and followed his instructions and guidance obediently. He had placed complete faith, trust and confidence in his father. After his graduation, he was offered a job by American Express Bank. But his father requested him to help him in his business. He eventually decided to join Peace Hill, although his salary as determined by his father was modest, because he felt obliged, as a matter of filial duty, to assist him in his business.

70.In his supplemental witness statement dated 14 June 2010, the Son gave much fuller details on his father’s personality and their relationship :

“11. I was brought up in a warm traditional family where my father was the center of the family. My father was the bread-winner of the family and we all listened to his words. When I was young, my mother, my sisters, brother and I were not allowed to challenge his authority at all. If we didn’t listen to him, he would scold us badly or even hit us.

12. I remember that there were times that when my mother disagreed with my father, they fought and scolded at each other. Nonetheless, my mother finally listened to him at the end of each fight. Having said that, the relationship between our family members has most of the time been very harmonious.

13. Since I had great reservation and hesitation to raise any of my idea or request to my father, I used to ask my mother to tell my father my request. My mother always helped me to talk to him.

14. However, when there was no disagreement, my father has always been a perfect father. He usually spent his free time with us, maybe going out for lunch or dinner.

15. Even since I was young, he always taught me that a good son should always be obedient to his father. It was under this traditional family did I grow up and I was influenced to follow instructions of my father since I was born. My experiences in the family made me to become a ‘filial’ son who listened and reposed trust and confidence to my father. I would not have any opportunity to challenge and offered any explanation from my father for supporting reasoning behind his requests. Only in recent years did my father start not to treat me as if I was a little child and had my own mind or free will.

16. When I was a teenager, my respectable father started to educate me that after I had grown up, I should help him in his business (he was then a minority shareholder of Wellfive Company in 1983 and then a major shareholder of Youngsun in 1989). He has always been a successful businessman and I respected him as my idol and role model at that time. I imposed great trusts and confidence to my father and I accepted a lot of suggestions and requests offered or imposed by him on me.

17. When I finished form 6 in Hong Kong, my father insisted that I must do accounting as my major, instead of finance where my interest lied.

18. After my graduation, I worked for American Express Bank as a summer intern. At the end of the summer, AE Bank offered me a permanent position.

19. At that time, I honestly wanted to accept the offer because I had always had an interest in the financial industry. Further, my classmates were offered high profile jobs but trading plywood was in my mind a rather old fashion and outdated business. Therefore, I went back and talked to my father but he opposed my suggestion. I lightly raised my will about twice to my father and mother and they all turned down my request at the spot.

20. Pursuant to my over 20 years of experience living with my father, I truly understood that there was no point in raising my suggestions with them at all (not to mention about arguing with him, as I have all along listened to my father). I have got used to imposing trust and confidence to my father whenever he so instructed or advised me. With his years of experience as a successful business, I knew that his decision must be correct. I soon reluctantly turned down the offer from AE Bank and joined Peace Hill as instructed by my father.

…

22. After I joined Peace Hill and around the time (around 1992) when my father’s partner in Youngsun Development Ltd., Mr Pai Chin Hwa, left the company, my father’s temper got worst. I think he was under severe stress – business were getting tough, cost of running the company was getting high, Mr Pai left the company and he had to work alone, etc.

23. My father then easily got angry and scolded at anyone, including me, when we were not acting in accordance to his instructions or tried to reflect different opinions to him. He would keep mentioning the incidents over and over again, giving everyone pressure.

24. I felt unhappy about my job in Peace Hill since I gained no sense of satisfaction when compared to my university classmates. My requests/suggestions to my father were always rejected as my father said I was naïve on doing business. His denial of course bore great commercial sense since he had so much experience and there must be logical reasoning in his mind. …

25. I believe it was because of this dominating way my father acted, I could not build up my confidence in the business of Peace Hill and could not build up my interest. My father has already remained the mastermind of the whole business. I was not given the opportunity (but just denial of rejection of my ideas by my father) to develop myself through the years of working in Peace Hill.

…

29. My mother sometimes helped me to talk to my father when she saw that I was unhappy. In many times, my father scolded my mother badly, making her very depressed and upset. I sometimes saw her cried. This in turn, made me feel sorry about my mother. I felt bad too because it was me who make her being scolded and unhappy. In addition, my father would keep mentioning the same issue over and over again to my mother, making her very stressful. I felt very uneasy and stressful every time when I head my father scolding my mother because of me. This made me not to show different opinion with my father and listen to what he said without raising challenge.

30. On the business side, I imposed great trust and confidence to the instructions of my father and mainly executed the instructions under the influence which was built in my mind. I also had difficulties and I found it against my interest and will to deal with mainland people and Malaysian (our business associates), as their cultures were totally different from ours. I had no interest to learn or to blend in their cultures.

…

32. My father seldom accepted ideas which were different from his. But to be frank, his ideas were mostly the best and comprehensive in plywood business. I always try my best to meet my father’s standard and follow every of his decision as a process of learning. However, sometimes when I tried to have a little bit of my own ideas, I would try to raise to him. But I have never succeeded in our arguments. As time passed, I realized that he was as dominating whilst I was at work as he was at home. I had got really frustrated and I started to give up.

33. Although I tried my best to meet my father’s standard, he was never satisfied. That was why he invited Mr Lie Yoe Chong to join the Company to assist me to do business and work together in the daily operations of the Company.

34. Every time when I was really unhappy, I wanted to resign from the Company. Working in Peace Hill was not where my interests lied at all. Then, my father scolded at me and asked my mother to influence me by bringing out the filial reason and the Chinese traditional concept. I didn’t want to hurt my parents’ feeling. Every time I abandoned the idea and worked under the pressure and instructions of my father.”

71.In the box, the Son said that he regarded his father with a mixture of love, fear and respect. He repeatedly described his own personality at the material times as timid and weak. He even said he was simple-minded and stupid. He trusted his father’s judgment completely.

72.Mr Lie described the Husband as very stubborn, bad tempered person and dominating with a strong desire to control others, that is, his family members and staff, and all matters without caring much about their feelings. But he appeared to be amicable and nice when outsiders such as solicitors and business associates were present. In this respect, he echoed what the Wife said and summed up the Husband’s character as being “外圓內方”. He was very careful with spending money, too.

E.2. The impressions of other witnesses

73.The evidence of Mr A. Chan, Mr Pang and Mr Yeung painted a very different picture.

74.Mr A. Chan had met the Defendants as early as 1991 when working in Kwong On Bank. His recollection of the details was understandably limited given the long lapse of time. But he recalled that he had meetings and lunches with them. As far as he could tell, the relationship between the Husband and the Wife and that between the Husband and the Son were respectively an ordinary husband-wife and father-son relationship. He did not observe any signs of domination or intimidation.

75.Mr Pang first met the Husband, the Son and Mr Lie at the August Meeting when they attended their office for signing the formal sale and purchase agreement for the Property. The Son raised questions and knew what he was doing. He was a mature adult capable of expressing his own thoughts and views. Afterwards, Mr Pang and Mr Yeung had two lunches with the Defendants and Mr Lie upon the Husband’s invitation. In his first witness statement dated 14 April 2003, Mr Pang referred to the lunches and said :

“9. … I remember that [the Husband] was by nature a loquacious individual, fond of explaining how the Li family had built up their companies from nothing. My impression at the relevant time was that [the Wife]…was an amicable individual and capable of expressing her own views and opinions….I found [The Son] to be an educated and intelligent individual, fluent in spoken and written English and also capable of expressing his own views and opinions and independently conducting business transactions on behalf of his family business.”

In his supplemental witness statement dated 19 August 2009, Mr Pang’s evidence on his impression on the Wife and the Son is similar. He added that the Husband adored the Wife and she was able to be strong and assertive and was never at the whims and fancy of her husband. The Son was able to express his views on even trivial social affairs.

76.Mr Yeung said in his oral testimony did not have much recollection of the entire incident, including his impression of the Defendants, because of long lapse of time. As far as he could recall, the Wife appeared to be just an ordinary person with nothing special.

E.3. Evaluation and findings

77.The Defendants’ and Mr Lie’s allegations about the Husband’s domineering and dictatorial personality on the one hand and the Wife and the Son’s subservient character and attitude towards him on the other, is crucial to their case on undue influence. Yet, inexplicably, those allegations were not mentioned at all in their affirmations filed in opposing SCB’s application for summary judgment in 2001 or in the first round of witness statements filed by the Defendants in April 2003. In those previous affirmations and witness statements, what was said, in a nutshell, was that the Wife and the Son placed complete faith, trust and confidence in the Husband. The new allegations were only raised for the first time by the Defendants and Mr Lie in the latest round of witness statements filed in or after November 2009. Given the utmost importance of these new allegations, if true, I fail to see any reason why the Defendants and Mr Lie would have failed to mention them at the outset at all. In my view, they are plainly recent fabrications.

78.Mr Lam, counsel for the Wife, and Mr Liu, counsel for the Son, argued that the substance of these allegations were already there in the previous affirmations and witness statements. So they were not recent fabrications. I disagree. I have carefully gone through the contents of the affirmations and the witness statements. The substance of those new allegations is nowhere to be found in the earlier evidence. Indeed, respecting the Husband, placing trust and confidence in him and deferring to his views and decisions is one thing. The Husband having a domineering and dictatorial personality and the Wife and the Son having a subservient character and attitude towards him is quite another.

79.In my view, raising these new allegations in their latest round of witness statements was but a last minute attempt by the Defendants and Mr Lie together to embellish the case on undue influence. The attempt is perhaps best exemplified by the detailed particulars that the Son gave in his supplemental witness statement.[5] Their concerted effort to “beef up” the defence of undue influence by fabricating evidence completely destroys their credibility. I reject their evidence on the Defendants’ personality and relationship, be it the initial allegations contained in the first round of witness statements or the later version in the second round of witness statements, entirely.

80.I accept the evidence of Mr A. Chan, who was not shaken under cross-examination. He impressed me to be a truthful and reliable witness. I also accept Mr Pang’s evidence on this aspect. I am aware of the attacks that Mr Lam and Mr Liu deployed against Mr Pang’s credibility. But as I will demonstrate in a moment, despite some deficiencies, Mr Pang remains, in my view, a credible witness overall when his evidence is considered in the round. Mr Yeung’s evidence does not add much to the question as he readily accepted that his did not have much impression about the Defendants.

81.My findings on the Defendants’ personality and relationship are therefore as follows. The Husband did not have a domineering or dictatorial personality or was so-called “外圓內方”. The Wife and the Son did not have a weak and timid character. The Son was not naïve or stupid. They were certainly not subservient to the Husband as alleged. They were mature adults capable of expressing their views and opinions and conducting themselves freely and independently. Any trust and confidence between the Husband and the Wife and between the Husband and the Son is no more than what one reasonably expects from an ordinary husband-wife and father-son relationship.

82.I next come to the Defendants’ respective role and involvement in Peace Hill. The question as to Peace Hill’s beneficial ownership at the material times also arose in this context.

F. THE DEFENDANTS’ ROLE & INVOLVEMENT IN PEACE HILL

F.1. The Defendants’ version

83.In his first witness statement, the Husband first detailed the setting up of Youngsun, Peace Hill, Excel Profit and Brizon’s involvement. He said since August 1983 he had been a director and shareholder of Wellfive Company Limited (“Wellfive”), which traded in plywood from Indonesia to the Mainland. In January 1988, he and a Mr Pai Chin Hwa set up Youngsun for the purpose of carrying on a similar business. He had 51% interest in Youngsun but the shares were held by the Wife on his behalf. He also arranged her and Mr Patrick P.Y. Kwong to act as nominal directors on his behalf. In about November 1989, the Husband left Wellfive to focus on the development of Youngsun. He first registered as a director and in July 1990 asked the Wife to transfer 20% of the shares in Youngsun to him. In May 1992, Mr Kwong resigned as a director. In January 1993, Mr Kwong ceased to be a shareholder after transferring 30% and 19% of the shares to the Son and the Husband respectively. At the time, Youngsun’s shares were held by the Husband, the Wife and the Son as to 39%, 31% and 30% respectively. They were the 3 directors as well. On 26 September 1994, the Husband and the Wife transferred their shares to the Daughter. The Son transferred all his shares to Brizon, a BVI company representing the interest of the Husband’s relatives in Indonesia. Youngsun had since been held by the Daughter and Brizon as to 70% and 30% respectively. The Daughter also became a director. She and the Husband were the two directors until 6 November 1997 when she was replaced by the Son.

84.The Husband went on to say that there was export quota for plywood exported from Indonesia to the Mainland imposed by the Indonesian Plywood Association in 1991. The Association did not allow a person to trade in plywood from Indonesia if he was at the same time trading in plywood from Malaysia. In about June 1991, the Husband utilized Peace Hill to circumvent the quota system for trading plywood in Indonesia. Initially, the two subscriber shares were held by T&T Registrations Limited and Symbol (Nominees) Company Limited. In June 1991, the authorized capital was increased to HK$1,000,000. The Son and the Daughter, then 19, held 80% and 20% of the shares respectively. Both of them were directors as well. On 26 September 1994, the Son transferred 40% of his shares to the Daughter and 40% to a Brizon. The Daughter then held 60% of the shares. In June 1995, the Daughter passed away. In May 1996, all the 60% shares held in the Daughter’s name were transferred to T&T, who held the shares for and on his behalf. T&T was later appointed as director.

85.The Husband then said that he contributed all the capital of Peace Hill; that the Son and the Daughter held the shares for and on his behalf; and that he beneficially owned 100% of the shares in Peace Hill between June 1991 and 25 September 1994 and 60% thereafter up to March 1999.

86.According to the Husband, in 1991 his relatives in Indonesia leant that his plywood business was prosperous. They were interested. In November 1991, Excel Profit was accordingly set up, Brizon and Mr Cheung Fong Ming, a friend of the Husband, holding 95% and 5% of the shares respectively. The Husband promised to help his relatives to run Excel Profit’s business and allow Excel Profit to use the banking facilities of Youngsun and/or Peace Hill. However, Excel Profit’s performance was not satisfactory. In about September 1994, the Husband’s relatives wanted to become an equity owner of Youngsun and Peace Hill. He agreed. Eventually in September 1994, Excel Profit became 30% and 40% shareholder in Youngsun and Peace Hill respectively. In April 1997, Mr Cheung resigned as director and transferred his shares to Mr Johny Lisangan Li, the Husband’s brother representing the Indonesian relatives.

87.The Husband said that although his relatives allowed him to run Excel Profit for them, they requested him to consult them before entering into any major transactions. They also let the Husband make arrangements for documents to be signed on behalf of Brizon for filing in the Companies Registry. They also asked the Son to act as Excel Profit’s secretary.

88.The Husband then dealt with the Wife’s and the Son’s involvement in Peace Hill in these terms :

“Involvement of my son in my business

16. In the course of business of Youngsun and [Peace Hill], I delegated to my son many tasks which I considered to be within his capability. Therefore, from time to time I asked him to sign many business documents on behalf of Youngsun and [Peace Hill]. However, he had to consult me before he signed any such business documents. All the decisions on major transactions were solely made by me.

17. I maintained a complete control of the finances of my businesses. I therefore made arrangements so that under bank mandates of all the bankers of [Peace Hill] at least 2 signatories were required for operating bank accounts. Most of the banking documents (including cheques) were jointly signed by my son and me. That is why my son’s signatures appeared on most of the documents referred to by [SCB].

…

Role of my wife in my business

20. My wife has at all material times been a housewife. She has no working experience. I made arrangements so that my wife was registered as a nominal director of Youngsun in the period from 15^th January 1988 to 3^rd November 1994. I also instructed the banks to prepare the bank mandates so that all banking documents must be signed by at least 2 signatories. My wife was made a signatory of all the bank accounts of Youngsun and [Peace Hill] to cater for the situation where either my son or I was not available (either for business trips or other reasons), when she would sign as directed by me. Therefore, from time to time (when my son or I was not available) my wife would (together with either my son or me) sign banking documents (including cheques). Throughout the years, I have presented numerous banking documents to my wife for signature. Although she did not understand the nature of the documents, she never raised any questions. She would just sign when I asked her to do so. As my wife was a signatory of bank accounts, it is not surprising that she had signed some banking documents. Apart from signing some banking documents and returns for filing in the Companies Registry, my wife never took part in the operation or management of my business (whether Youngsun or [Peace Hill]. She never attended any business meeting because she simply would not understand anything about my business or any business.”

89.In his supplemental witness statement, the Husband added that occasionally the Wife accompanied him to have lunches and/or dinners with customers but she never talked anything about his business. He further said about the Son’s involvement thus :

“18. I arranged my son to join the companies which were controlled by me because I trusted him and considered him to be a very obedient boy. He would do anything that I asked him to do without any hesitation. He was well able to meet my requirements. However, as he then had just come back to Hong Kong and lacked working experience, it was difficult for him to handle the increasingly heavy workload. For that reason, I employed [Mr Lie] who had years of experience in management and had been doing trading business in Singapore and Hong Kong, as the General Manager of Peace Hill so that my son could learn from him and thus assist me in handling daily operations of the company.

…

20. … Although my son was described as a director in his name card and registered in the Companies Registry as a director, all people knew that he was just a nominal director. Customers in the Mainland China as well as overseas and bank officers would contact me for all major affairs and I would make all the decisions on matters including sale and purchase prices, the amount of banking facilities, etc... All decisions were made by me. My son definitely did not dare to make any decisions on his own. I required him to coordinate with [Mr Lie] to handle the daily operations of the business. As I did not know English, both of them were therefore responsible for dealing with correspondences, import and export documents and English contracts etc.”

90.As to her involvement in the Husband’s business, the Wife said in her first witness statement :

“3. … My husband told me that his business partners in Wellfive might not be happy with his decision to set up a similar business. (She was referring to Youngsun.) Therefore my husband asked me to act as a nominal shareholder and director of Youngsun on his behalf. I did not understand what I was supposed to do. I accepted my husband’s arrangements. He asked me to sign some documents to give effect to his arrangements. I was not required to attend Youngsun’s office or to do any work. I, however, occasionally accompanied my husband to have lunches/dinners with his business associates.

…

5. In about 1991, my husband set up Peace Hill Development Limited (‘the Company’). Since then, I was occasionally required to sign some documents and cheques on behalf of Youngsun and the Company when my husband or my son was not available. Apart from this, I did not participate in my husband’s business (whether Youngsun or the Company) at all. I have at all material times been a housewife. I only occasionally went to the Company’s office for joining my husband for lunches or dinners. Apart from this, I seldom attended the Company’s office.

6. My husband has always held himself out as the Chairman (董事長) of the Company. I have never held any office or shares in the Company nor in any way been concerned in or had knowledge of the management, affairs or activities of the Company save such knowledge as I have acquired informally from time to time from my husband as incidental to the relationship between my husband and me as husband and wife. For example, my husband would tell me that the Company was opening new accounts or obtaining new facilities with a bank and I would be needed to sign certain documents to give effect to it. However, I would not be told of the details of the banking arrangement such as the terms thereof. For my husband, there was no need for me to know anything further. From time to time, documents were presented by my husband or his subordinates to me for my signature. I never cared about the contents of the documents. I just signed them without reading the documents.

7. Although I was an authorized signatory of the accounts of the Company, I seldom signed cheques issued by the Company. My husband is very cautious in financial control. He therefore arranged that under the bank mandate cheques must be signed by at least 2 signatories. Usually cheques were signed jointly by my husband and my son. However, on some occasions, when my husband or my son was not available (because of business trips or other reasons), my husband would instruct me to sign cheques in the stead of him or my son.”

91.In her supplemental witness statement, the Wife added :

“13. Given the fact that I do not know English and my trust and confidence in my husband, I used to sign any documents that my husband asked me to sign. Documents were presented by my husband to me from time to time for my signature. I just signed them and never cared about the contents of the documents. As I had no business concept at all and was not well educated, so long as he could get things done my husband thought it was not necessary to explain too much to me (whether in respect of his decisions or the documents that required my signing).

…”

92.The Son said in his first witness statement :

“4. In about June 1991, my father set up the Company for carrying on a new log/plywood business. Because of the quota system for plywood in Indonesia, my father did not register himself as a shareholder or director of the Company. Instead, he arranged for my sister Li Yie Wei Evelyn (李怡薇)(then 19) and me (then 22) to be registered as shareholders and directors of the Company. It was, however, intended and agreed by all of us that the shares were to be held by my sister and me at the disposal of my father.

5. My father was at all material times and beneficial owner of all the shares registered in the names of my sister and me. Through the directorships of my sister and me, he also had effective control of the Company. My father has been financially supporting the Company by injecting funds as its working capital. The Company got business through the business contacts of my father. All transactions of the Company were subject to the final approval by my father. Although at the time of the transactions in question in the present action my title was ‘Managing Director’, I had no say in policy or business decisions of the Company. I signed all documents (including cheques) placed before me by my father without doubting or questioning his decision or judgment.

…

7. I was a nominal director acting on behalf of my father. Naturally, in the course of business of the Company, I had to sign various business documents on behalf of the Company. I had to do so because my father at the material times was not registered as a director. However, throughout the years, my father was the person who actually owned and managed the Company and I was only assisting him. I signed the business documents in accordance with the directions given by my father. As I was one of the 3 authorized signatories of the Company’s bank accounts, I had (together with my father) signed most of the bank documents (including cheques)(although my mother occasionally signed some bank documents (including cheques) when my father or I was not available). Although I have participated in the operations of the Company, I only worked under the direction of my father. All the decisions in the Company were subject to the final approval by my father.

8. My mother has at all material times been a housewife. She did not take part in the operation or management of the Company. In fact, she only occasionally went to the Company’s office for joining my father for lunches or dinners. Apart from this, my mother seldom attended the Company’s office.

9. My father is very cautious in financial control. He made arrangements so that under the bank mandate all cheques must be signed by at least 2 signatories. Most of the cheques were jointly signed by my father and me. I signed the cheques in accordance with the direction of my father. My mother was made a signatory to cater for situations where either my father or I was not available (either for business trips or other reasons), when she would sign as directed by my father.

Brizon Holdings Limited

10. At all material times I did not have any beneficial interest in Brizon Holdings Limited. According to my father, Brizon was owned by his relatives in Indonesia. Brizon was, however, a passive investor which just let my father run the Company. As Brizon had no staff or representative in Hong Kong, my father usually asked my sister Vivian Li or me to sign business documents on behalf of Brizon. The fact that I had signed some documents on behalf of Brizon, however, does not mean that I was a beneficial owner of Brizon.”

93.The Son added in his supplemental witness statement that his father did not listen to any of his or Mr Lie’s views or suggestions. He was frustrated and lost confidence because of his father’s domineering personality. He then said that his father had full financial control on Peace Hill and him. Although he was named as managing director or director of Peace Hill, he had no control over Peace Hill’s management. Only on some minor issues and rare occasions, such as when his father was too busy or out of town, could he make some decisions after seeking permissions from him on the phone. It was also his father who decided whether to revise the salary of all the employees of Peace Hill. A salary record between 1996 and 1999 with the Husband’s handwriting on it was produced in support (“the Salary Record”). I will come back to the Salary Record in a moment.

94.As to the Son’s and the Wife’s involvement in Peace Hill, Mr Lie said in his witness statement :

“[The Son’s] participation in Peace Hill Development Limited

6. I was instructed by Li Wai Ping that one of my duties was to assist Li Tso Bun and guide Li Tso Bun how to become a businessman. Li Tso Bun lacked any experience and knew nothing about plywood business. Li Wai Ping knew that he himself was never a good teacher and therefore he invited me to work with Li Tso Bun.

7. After joining Peace Hill, Li Tso Bun and I handled the marketing business. Both of us worked under Li Wai Ping and the rules and instructions set by him. Li Tso Bun and I did not have any actual authority in Peace Hill.

8. I understand that Li Wai Ping, who has all along been financially supporting Peace Hill, was at the material time (namely 1997) the beneficial owner of 60% of the shares in Peace Hill. Li Tso Bun appeared in Peace Hill’s books as a director thereof but held that office in name only. Li Tso Bun acted according to the directions of Li Wai Ping. The effective management of Peace Hill was in the sole hands of Li Wai Ping who never consulted Li Tso Bun on any matters arising in respect of the policy, management or direction of Peace Hill. All transactions of Peace Hill were subject to the final decision and approval by Li Wai Ping. Li Tso Bun signed all documents (including cheques) placed before him by Li Wai Ping without doubting or questioning Li Wai Ping’s decision or judgment.

9. During Li Tso Bun’s and my tenure in Peace Hill, we were not aggressive. This might due to the fact that we were always working under Li Wai Ping’s directions and instructions. Our role was to execute what Li Wai Ping had decided and manage the office according to rules and ideas set by Li Wai Ping. Without the prior approval of Li Wai Ping, nothing (including reasonable rules and ideas) could be implemented.

10. I had worked with Li Tso Bun for almost 7 years. Throughout the years, Li Wai Ping had never delegated the power to any one, including Li Tso Bun. Especially in respect of money, Li Wai Ping was always the decision maker. Li Tso Bun and I were Li Wai Ping’s subordinates who had to follow what Li Wai Ping wanted us to do, even if his decisions were wrong.

11. Li Tso Bun is a very good man. I have never seen him arguing with anyone on any matter. Li Tso Bun is a filial son. He joined Peace Hill not because of monetary return or interest in doing business but because his father asked him to do so. Li Tso Bun was not interested in doing business at all. Sometimes Li Tso Bun and Li Wai Ping had different opinions in handling matters, but in the end Li Wai Ping’s opinions always prevailed. Li Tso Bun (being the eldest son of the family) did not want to cause any trouble to Li Wai Ping. Therefore, Li Tso Bun always listened to Li Wai Ping in order not to upset Li Wai Ping. Sometimes when there was difference in their views, Li Wai Ping would instruct his wife Gosal Teinnie (i.e. the 2^nd Defendant) to advise Li Tso Bun to listen to Li Wai Ping. Li Tso Bun would always accept Gosal Teinnie’s advice.

[The Wife’s] role in Peace Hill Development Limited

12. Gosal Teinnie (i.e. the 2^nd Defendant herein) is the wife of Li Wai Ping. She is an Indonesian Chinese who received traditional Indonesian education. She has no business experience and does not know how to do business. She has never held any office or share in Peace Hill. What Gosal Teinnie cared was going to shopping and to come to the office to join her husband Li Wai Ping for lunch or dinner. Gosal Teinnie knows nothing about doing business. Gosal Teinnie sometimes could not present her idea in an organized way. Her conversations were unorganized and mostly about worshipping God, news about her or Mr Lie’s relatives and were usually causal.

13. Gosal Teinnie is one of the signatories of Peace Hill’s bank accounts. It is because Li Wai Ping is very cautious in financial control. He arranged that every important document must be signed by at least 2 signatories to be effective. When Li Wai Ping or Li Tso Bun was not available (because of business trips or other reasons), Li Wai Ping would occasionally requested Gosal Teinnie to sign cheques. Apart from this, Gosal Teinnie had never been involved in the management, affairs or activities of Peace Hill and had never participated in any business decision of Peace Hill. Gosal Teinnie seldom attended Peace Hill’s office. Gosal Teinnie only occasionally came to Peace Hill’s office to join Li Wai Ping for lunches or dinner.”

95.Ms Lie said that the Wife had never worked in Peace Hill. She occasionally came to the office to wait for the Husband to have lunch or dinner. She did not care about Peace Hill’s operations at all. She did not even bother to look at Peace Hill’s documents. No colleagues had ever talked to her about Peace Hill’s business. She only cared about her husband, children and shopping.

F.2. The impressions of other witnesses

96.According to Mr A. Chan, his impression was that back in 1991 the Wife and the Son were involved in Peace Hill’s business, although the decision maker was the Husband. When he met the Son again in about mid-1997, he appeared to be familiar with Peace Hill’s business.

97.Mr Tong’s impression is that the Wife and the Son were involved in Peace Hill based on his understanding of the bank’s documents.

98.Ms Leung said when she met the Son in December 2000, he introduced himself as Manager. He explained in detail the reasons why Peace Hill was in financial difficulties. He understood the nature of Peace Hill’s business and could tell her clearly what was happening to Peace Hill. He also understood the banking facilities granted to Peace Hill.

99.Mr Pang recalled at the first lunch with the Defendants in August 1997, the Son was very vocal and told him about the plans for Peace Hill, including the prospect of public listing. The Wife gave him the impression that she was not a typical housewife or Tai‑Tai and that she was very businesslike. She had conversation with Ms Lily Lau not just about pleasantries but about banking transactions as well. Ms Lau was apologetic to the Wife because, Mr Pang thought, an application to Belgian Bank for facilities had fallen through.

100.Mr Pang disagreed that he knew that the Husband beneficially owned Peace Hill or that he was the patriarch of the business. He accepted that the Husband had a role to play but disagreed that he knew that the Husband was the Chairman. To him, Peace Hill was very much like a family business and the Son was representing it. He did not know how substantial the Husband’s role in Peace Hill was.

101.Mr Yeung said that at the lunch, he learnt “during the talk or chat, from the conversation between their family, they introduced themselves” that the Wife was a housewife or Tai-Tai.

F.3. Evaluation and findings

102.The Defendants’ version of their respective role and involvement in Peace Hill does not bear a closer scrutiny.

103.If the Defendants and Mr Lie are capable of fabricating evidence on the Defendants’ personality and relationship, they must be equally capable of giving untrue evidence on the Defendants’ respective role and involvement in Peace Hill. Their evidence on those mattes is seriously tainted.

104.When giving evidence, the Wife repeatedly said that she trusted her husband and signed whatever documents that he signed or asked her to signed. She was cross-examined about her involvement in Peace Hill and other family businesses. She invariably said she could not remember or did not understand. For example, she did not understand what it meant to be a director. She could remember Peace Hill and Youngsun but did not know any detail. She could not recall if she was a director or shareholder. She could not remember any of the documents that she had signed for the companies and did not know anything about them. What she could recall with details is what happened at the October Meeting, to which I will return below. I agree with Mr Stock, counsel for the Solicitors, that her evidence bears the hallmark of a rehearsed piece. My distinct impression is that she tried to play an ignorant housewife but had overdone it.

105.Ms Lie’s evidence is of little value. She tried to corroborate the Defendants’ case on the Wife’s involvement in Peace Hill. While it may be true that the Wife was not concerned with the daily operations or management of Peace Hill, as exemplified by the undisputed fact that none of the bank officers had seen her during the course of the impugned transaction, her role is truly more than what Ms Lie had described, when all the evidence in considered in the round.

106.More importantly, the Defendants’ version is flatly contradicted by some contemporaneous documentary evidence, the most important of which is the Limit Application.

107.The Limit Application is the primary contemporaneous document which provides important information as to the beneficial ownership of Peace Hill and the respective role of the Defendants in relation to its operations and management at the time of the Guarantee. It is also the document from which SCB derived its understanding of those matters at the time.

108.The first point to note is the source of the information contained in the Limit Application. It is the Defendants’ case that he negotiated with Mr E. Lam exclusively for the facilities. So even on their own case, the information contained in Peace Hill, in particular those concerning Peace Hill and the related companies and their respective roles in Peace Hill, must have come from the Husband.

109.As to the contents, the Limit Application stated that the Husband was both the beneficial owner as well as the principal of Peace Hill and other related companies referred to, and had the overall supervision of Peace Hill’s operations and management. The Wife was Peace Hill’s hidden director with extensive connection with plywood manufacturers in Malaysia. She had been assisting the Husband for over 10 years on sales and marketing. The Son was a director of Peace Hill, responsible for its administration and finance.

110.Given its importance and for completeness, the relevant parts of the Limit Application are quoted below :

“2. FACT SHEET

2.1 History / Progress to Date

Established in Feb. 1991, Subject is a private limited concern company with a paid up capital of HKD1 million. The purpose of setting up this company is to take over the business of Youngsun Development Ltd. which is formed in year 1987 and owned by Mr Li Wai Ping.

In fact, Mr W.P. Li has been in this line of industry for over 25 years. Before establishment of Youngsun, he had set up a number of companies with other partners, engaging in manufacturing and trading of plywood in PRC for years.

2.2 Ownership / Organization Structure

Subject is essentially a family Company 100% owned by Li’s family. As per company search, Peace Hill is 80% and 20% owned by Mr Li Tso Bun Benny and Miss Li Yie Wei Evelyn respectively. They are also directors of the company and related as brother and sister. However, the beneficial owner in fact is their father Mr Li Wai Ping.

2.3 Related Companies

Youngsun Development Ltd

The company was the predecessor of Subject and established in year 87, which is 70%/30% owned by Miss. Li Yie Wei and a BVI company called Brizon Holding Ltd. [‘Brizon’] (as told, it is ultimately owned by Mr Li Wai Ping). The company now is inactively conducted. Per the audited financials 3/97, sales was recorded at HKD3.9M with net profit of HKD0.9M.

Excel Profit Enterprises Ltd.

The company was established in year 1991 and was 95%/5% owned by Brizon Holding Ltd and Mdm. Cheung Fong Ming. Mr Cheung, as told, is one of the senior staff of the group. It has been become dormant since year 96.

2.4 Activities / Products

The Group is principally engaged in the trading and marketing of timber products mainly plywood. …

…

2.8 Management, Labour & Other Resources

Subject is basically a Hong Kong based family business.

Mr Li Wai Ping (age : 54) –

He is the principal of Subject group and is an experienced plywood trader. He has been in the timber business for over 25 years and is well respected in the timber business.

Mdm. Gosal Teinnie (age : 49) –

Mdm. Teinnie is wife of Mr Li and is the hidden director of Subject Company. As told, she is a Malaysian Chinese and has extensive connection with plywood manufacturers in Malaysia. She has been assisting Mr Li for over 10 years on sales and marketing.

Mr Li Tso Bun Benny (age 27) –

Mr Benny Li is son of Mr Li Wai Ping. He has joined the company for 5 years after he graduated got his bachelor degree of Accounting from University of Southern California, USA. He is responsible for the company’s administration and finance.

The Company currently employs about 7 staff in Hong Kong.

…

4. BANKING RELATIONSHIP

With Other Banks

Subject currently maintains borrowing relationship with 3 banks, Ka Wah Bank, Kwong On Bank and BRI Finance Ltd. Total availed banking facilities for USD12.28 million are granted on partially secured basis (For details, please refer to the attached Appendix I).[6] Notably, Ka Wah recently has increased the credit limit whilst BRI renewed the existing limit but reducing the bills pricing and partially release of pledged deposits. This, to a certain extent reflected the account performance and credibility of Subject.

…

With Standard Chartered Bank

The ultimate owner of Subject, Mr Li Wai Ping & his wife, Ms. Gosal Teinnie have bank with our personal banking since year 1984. Recently, they have placed free deposits for over HKD3.4 million with us.

5. ANALYSIS OF RISK

…

5.3 Management Risk

In common with other medium size trading firm, the Company has a relatively simple, family business type management structure. Mr W.P. Li, the founder, is responsible for the overall supervision of the Group’s activities as well as its corporate and business management. He has over 20 years of hands-on experience in the plywood industry. And he has begun to delegated the works to his son, Mr Benny Li, the succession risk is therefore considered low.

…

5.5 Security Risk

…

To demonstrate his commitment to the Company, the dominant directors/shareholders, Mr Li Wai Ping, Mdm. Gosal Teinnie and Mr Benny Li will provide joint & several personal guarantee for USD2.6 million to cover the entire line. They are believed to be high networth personnel and good for the amount guaranteed as evidenced by the followings :

1     Self-occupied residential property in North Point (free from encumbrance and jointly owned by Mr & Mrs. Li) (land search attached)	CMV HKD10 million
2     Free Deposit and unit trust with Standard Chartered Bank	HKD 3.5 million
3     Free Deposit with other banks (copies of deposit slips attached)”	HKD 1.7 million

111.The Husband now denied that he had ever told Mr E. Lam all those matters that contradict the Defendants’ case.

112.As seen, on Peace Hill’s beneficial ownership, the Limit Application recorded that Peace Hill was a 100% family based business of which the Husband was the beneficial owner and principal. As at September 1997, Peace Hill was held by T&T, the Husband’s nominee, and Brzion as to 60% and 40% respectively. The Limit Application went on to state that “as told”, Brizon was ultimately owned by the Husband. So even though the Limit Application did not correctly state the identity of the shareholders, it would be right in stating that the Husband was the beneficial owner of Peace Hill, if Brizon was in fact ultimately owned by him as well. When Mr E. Lam used the expression “as told”, he must mean that he was being told by the Husband that he ultimately owned Brizon. The Husband denied that he had done so. In his first witness statement, he first described how Youngun and Peace Hill were set up and the involvement of Brizon and Excel Profit.[7] He then said :

“26. When I negotiated with [Mr E. Lam], I told him my family background and the details of [Peace Hill]. I explained to [Mr E. Lam] that I had set up [Peace Hill] to circumvent the quota system for trading plywood in Indonesia and my son and my daughter held the shares on my behalf. [Mr E. Lam] noted that Youngsun and Excel Profit were mentioned in some of the copies of banking facilities letters supplied to him. [Mr E. Lam] raised questions about Youngsun and Excel Profit. I briefly explained to [Mr E. Lam] the background of Youngsun and Excel Profit. When [Mr E. Lam] asked me about Excel Profit and Brizon, I told him that they were owned by my relatives in Indonesia.”

He added that he did not know why Mr E. Lam stated that Brizon was ultimately owned by him. Probably Mr E. Lam had misunderstood the situation. Under cross-examination, he maintained that he had not told Mr E. Lam that Peace Hill was a 100% family based business.

113.As to the Wife’s status as hidden director of Peace Hill and her assistance in the business over the years, the Husband refuted in his witness statement thus :

“27. During the negotiations between [Mr E. Lam] and me in 1997, [Mr E. Lam] told me that if I could tell him more about the strengths of [Peace Hill] it would enhance the chance of approval of the banking facilities as requested by me. Although [Mr E. Lam] had never met my wife, [Mr E. Lam] said that the company searches revealed that my wife had once been registered as a director and shareholder of Youngsun and described as a merchant. He asked me about the role of my wife in my business. I told him that my wife was only a housewife and was not involved in the operation and management of my business….”

He added verbally that Mr E. Lam well knew that the Wife did not play any role in Peace Hill.

114.On the Son’s duties in Peace Hill, the Husband maintained that he was responsible for sales and marketing only. Although the Limit Application said that the Husband had begun to delegate the works to his son and the succession risk was considered low, he said he had not thought of succession at the time because the Son was not up to it yet.

115.Two questions arose from the Husband’s evidence :

(1) Did he provide the disputed information to Mr E. Lam?

(2) Was the disputed information true?

116.In my view, the suggestion that Mr E. Lam would have made up the disputed matters is inherently improbable. As emphasized by Ms Leung in her oral testimony, the Limit Application was a very important document and she would expect the material parts to be accurate and for care to be taken in preparing it. She is plainly right because SCB would have to rely on the information contained in the Limit Application to assess Peace Hill’s application for facilities. It defies common sense that Mr E. Lam would have made them up, thereby deliberately misleading the approving officer(s) and SCB. In the end, the Husband had to admit under cross-examination that he did not know why Mr E. Lam would have made them up. In my view, he could not proffer any credible explanation because obviously he was lying.

117.I find that the matters in the Limit Application which are now disputed by the Husband must have come from him. It shows unequivocally that he did tell Mr E. Lam that Peace Hill was a family based business owned by him beneficially; that he supervised its operations overall; that the Wife was a hidden director assisting him in the business and that the Son was responsible for Peace Hill’s administration and finance. The only reason why he now tried very hard to disavow those matters is that they are inconsistent with the defence raised by his wife and son.

118.As to the truth of the disputed matters, the mere fact that the Husband has sought so desperately to disavow them is most telling. It shows inferentially yet convincingly that they were in fact true.

119.I would add one point about how bad the Husband’s evidence on the beneficial ownership of Peace Hill is. The Husband maintained that Peace Hill was not a family because as from September 1994, Brizon, who represented his Indonesian relatives, owned 40% if its shares. While it is true that Brizon did on record hold 40%, there is not a single shred of documentary evidence to support what the Husband alleged. When questioned as to whether the relatives had paid anything for their involvement in Peace Hill and Youngsun, he said things were done orally, no money was remitted but they had made a lot of payments in advance for him in Indonesia. There were no formal records but they had made a note of it, which was not produced as evidence. He was clearly making up as he went along. Further, the Husband said that he had to consult his relatives on major decisions affecting Excel Profit. Yet he needed not do in respect of Peace Hill although they were a 40% shareholder. He justified the difference by saying that Excel Profit was their company at the outset and he was just helping them develop the business while Peace Hill was his from the outset and he just allowed them to become a 40% shareholder. I find it hard to believe that the relatives, as 40% shareholders, would simply leave all major decisions which might affect their financial interest in Peace Hill to the Husband without consulting them at all notwithstanding their alleged investments. More importantly, if the Indonesian relatives were in fact 40% shareholder of Peace Hill, why were the Defendants alone guaranteeing all its liabilities personally? The same query applies to Excel Profit. If the Indonesian relatives were its ultimate 100% shareholder, why were the Defendants, Peace Hill and Youngsun alone guaranteeing all its liabilities? On the evidence before me, there is simply no satisfactory answer at all.

120.Before I leave the Limit Application, I need to deal with four more points.

121.First, it is not in dispute that the Husband employed Mr Lie to teach him how to do business. This supports inferentially the possibility of the Son succeeding the Father in the business as alluded to in the Limit Application.

122.Second, the Limit Application undoubtedly contained some minor errors. As seen, it wrongly stated that the shareholders and directors of Peace Hill were the Son and the Daughter as per the company search. The company search that the Limit Application referred to was clearly outdated. This is a minor mistake because bearing in mind the nature of the document, which was to assess the application for facilities, what was more important is surely the point that the Husband was the beneficial owner of Peace Hill. The second mistake is that the Wife was not a Malaysian Chinese. She is an Indonesian Chinese. This is minor because what was important is her status and role in Peace Hill and not her nationality. The third error is about the Son’s age. He was then 28, not 27. The difference is negligible. Even if these errors were made by Mr E. Lam in preparing the Limit Application, I do not think it affects the overall accuracy and reliability of the Limit Application.

123.Third, counsel for the Wife and the Son submitted that although Mr E. Lam had already passed away, SCB ought to have called the responsible bank officers like Mr Frankie Chow,[8] Mr Chris Chan and Ms Julia Pang[9] to testify to the accuracy of the disputed matters in the Limit Application. However, as I have observed, the Limit Application must have been prepared with care and the material points must be accurate and there is simply no reason why Mr E. Lam would have made up those disputed matters. That being the case, not calling the responsible officers does not undermine the weight of the Limit Application.

124.Fourthly, Mr Lam submitted that the Wife had no knowledge whatsoever of what the Husband told Mr E. Lam. Even if that were true, it does not assist her. For what matters is her actual status and involvement in Peace Hill and not her knowledge of what her husband had told Mr E. Lam during the negotiations for the facilities.

125.Another piece of contemporaneous document that contradicts the Defendants’ case on the Wife’s role in Peace Hill is the Salary Record. The Son said it was the Husband who revised the employees’ salary. The Record shows that the Wife, like the other employees, was in fact paid regularly salary between 1996 and 1999. Her salary was revised together with other employees. She was even paid a double pay and year-end bonus for some of the years. The Salary Record clearly shows that she was an employee. The Husband and the Wife explained that the salary she received was for the household expenses and for employment of an Indonesian maid at the time. In my view, they made it up as they went along.

126.Finally, on the documentary evidence, it is not in dispute that both the Wife and the Son had signed numerous business and banking documents including cheques, letter of credit applications and personal guarantees in favour of other banks. Viewed objectively and stripped of their explanation as to why they signed them, which I reject, such conduct shows that their involvement in Peace Hill’s business is more substantial than what they wanted this court to believe. In particular, on the Wife’s part, such conduct is entirely consistent with her role as a hidden director who assisted the Husband in the business.

127.Further, it is not in dispute that the Son participated in the numerous meetings after Peace Hill had defaulted. According to the SCB’s officers who participated at those meetings, he was familiar with Peace Hill’s finance. This shows that his role is not limited to sales and marketing. The Husband and the Son alleged that it was the Husband who taught his son how to respond and negotiate with the bank officers at those meetings although for most of them he was not present. I find such allegation incredible. They made it up in order to downplay the Son’s role in Peace Hill.

128.I accept the evidence of Mr A. Chan and Ms Leung on the impressions as to the Wife’s and Son’s involvement in Peace Hill. Like Mr A. Chan, Ms Leung is a truthful and reliable witness. As to Mr Tong, his impression is supportable by the objective documentary evidence.

129.Mr Pang’s evidence on the Defendants’ involvement in Peace Hill was subject to much criticism by Mr Lam. In essence, Mr Lam complained that Mr Pang gave details of the two lunches and the alleged conversation between the Wife and Ms Lily Lau for the first time under cross-examination. He had failed to explain why he had omitted to do so in his previous affirmations and witness statements. He had embellished this aspect of his evidence in the box. There is some force in Mr Lam’s submissions. But when all the evidence in viewed in the round, I decline to accept his criticism. I think Mr Pang’s slip is explicable by the fact that a witness’s memory about the details of an event may be refreshed during cross-examination on the subject. More importantly, Mr Pang’s impression about the Wife’s and the Son’s involvement in Peace Hill is entirely consistent with the objective documentary evidence which I have referred to and the other witnesses’ impressions. In the circumstances, I am inclined to think that it was an honest omission on his part. And so I find. Such omission does not detract from Mr Pang’s overall credibility.

130.Mr Yeung’s evidence on the Wife being a housewife or Tai-Tai is of little weight. For the thrust of his evidence is that he did not have much impression of the Defendants at all.

131.For the above reasons, I find that Peace Hill was at all material times a 100% family based business of which the Husband was the sole beneficial owner. The Husband actively participated in Peace Hill’s business and operations. He also supervised Peace Hill overall, but not to the exclusion of the Wife or the Son as alleged. I accept that the Wife was not involved in the daily operations and management of Peace Hill. But I reject the notion that she was a mere housewife. I find that she was a hidden director assisting her Husband in the business. I further find that the Son was responsible for the administration and finance of Peace Hill, not sales and marketing as alleged.

132.I now come to the October Meeting.

G. THE OCTOBER MEETING

133.I first discuss several pointers arising from the events that took place before the October Meeting. They cast serious doubt on the Defendants’ version.

134.In July and September 1997, the Son had provided documents supporting the application for facilities to SCB. His and the Husband’s evidence is that he did not participate in the negotiations. He just sent the documents as per his father’s instruction. I accept that it was the Husband who signed the provisional sale and purchase agreement and that he negotiated with the bank officers for the facilities. But I reject his and the Son’s evidence that the latter merely acted as a conduit for providing documents. As I have said, they wanted to downplay the Son’s role in Peace Hill.

135.On 7 October 1997, that is, one day before the October Meeting, Mr Yeung faxed a whole set of documents to be signed at the Meeting to the Husband/the Son. The Son said he did not have much impression if he had seen the documents. In any event, his father would not allow him to discuss the documents with him. The Husband said for such documents he had given specific instructions that they must be placed on his desk. I am unable to accept their evidence. Common sense suggests that both the Husband and the Son were aware of the documents and most probably would have gone through them before attending the Meeting. The Husband does not understand English. He must need the Son’s assistance to read the documents. I find that they were fully aware that the Defendants would sign the Guarantee at the coming Meeting.

136.At the August Meeting when the formal sale and purchase agreement of the Property was signed, Mr Pang said and I accept he did explain the documents to the Son in Cantonese and he understood them before he signed on it. It shows that Mr Pang was following the usual conveyancing practice. Naturally one wonders why two months later he would have acted in gross dereliction of his professional duty at the October Meeting by conducting in the manner as alleged by the Defendants.

137.All the Defendants said in their witness statements that Mr Pang were aware of the Husband’s background, in particular, his relationship with the Wife and the Son. They were of course referring to their case that the Husband was dominating over them and they were subservient to him; that the Husband controlled Peace Hill absolutely to their exclusion; that the Wife was a mere housewife and the Son had a limited role to play despite his title as managing director. Such allegation is inconsistent with Mr Lie’s evidence that the Husband would not exhibit his domineering personality in the presence of outsiders. More importantly, if it were true, any reasonably competent solicitor, like Mr Pang, would have immediately advised SCB of the same and would not have proceeded with the Guarantee as if it were a normal transaction. By then, Mr Pang had had two years experience in conveyancing practice. He was acutely aware of the risks of undue influence because the House of Lords had recently pronounced its decision in O’Brien in 1994. It is inherently implausible for Mr Pang to have conducted himself in the way as alleged by the Defendants at the October Meeting.

138.To the October Meeting I now turn.

G.1. The Defendants’ version

139.The Defendants’ version is that the Husband went to Mr Pang’s office with his wife first. The Son came later. They were brought to a meeting room. Mr Pang and Mr Yeung later came in. Mr Pang told them that they were there as a mere formality, to sing some documents for Peace Hill to purchase a property. Mr Yeung then showed them a stack of documents and requested them to sign at spaced pointed out by him. The Husband signed. He then asked his wife and son to sign, which they duly did. Mr Pang had not explained the nature or effect of the documents to them. He had not advised them that they could seek independent legal advice. The Meeting was very short, which lasted for no more than half an hour.

140.In her oral testimony, the Wife repeatedly said that she trusted her husband very much. She was happy to sign whatever he put in front of her, because she trusted him to take care of the family businesses and her. She complained that Mr Pang had not explained the contents of the Guarantee to her. Had he done so, she would have refused to sign it and told her husband that she would not sign it.

141.The Son said in his first witness statement said that he was aware that one of the documents that he signed was a guarantee. But in his supplemental witness statement, he said that it was only when he saw the documents placed before him at the October Meeting that he was to sign a guarantee. In his oral testimony, he went further and said that when he so realised, he felt a “chilling feeling inside”. He looked to his father and could feel the pressure, so he signed. He said had Mr Pang taken him to a separate room without his father, he would tell Mr Pang about his concern. He did not dare ask about the Guarantee with his father’s presence. He could not even ask for an explanation with in his presence.

G.2. Mr Pang’s and Mr Yeung’s version

142.Mr Pang strongly denied their version. In his witness statement dated 14 April 2003, he said :

“16. On or about 8 October 1997, [the Defendants], [Mr Lie] and [Mr Ho] attended a meeting with me and Mr Yeung at the office of my ex-firm for the execution of all the documents relating to the loan/banking facilities to be extended to the Borrower by SCB. [Mr Lie] was not required to sign any documents. I surmise that he was invited to the meeting as he was a senior staff of the Borrower. The meeting lasted for at least one and a half hours. Mr Yeung also attended the meeting to assist me. I considered it my duty to impress upon the Li family the provisions of the said Legal Charge, the Guarantee and the other documents prior to their respective execution of the same. I explained to the Defendants and the other attendees in Cantonese the provisions and legal implications of the Legal Charge, the Guarantee and the other documents in detail and slowly. The Defendants were invited to raise questions, which I patiently answered.

17. I cautioned [the Defendants] separately of the aforesaid legal implications prior to their respective execution of the Guarantee and the other documents and asked each of them if they would like to be separately advised and not in the presence of each other and the other attendees to which the Defendants voluntarily declined.

18. I also explained to the Defendants and all the other attendees that I was acting for SCB in the transaction, notwithstanding the fact that the legal bill would be footed by the Defendants, and invited the Defendants to seek independent advice prior to their execution of the Guarantee, [the Acknowledgement], [the Certificate] and other documents to which they declined. This was an important practice adopted by my ex-firm at that time and I strongly believe that I had never failed to adhered to such procedure throughout my practice at my ex-firm. The Defendants then executed the Guarantee in my presence. The Defendants and Mr Ho (where execution by them of the documents was necessary) also executed [the Certificate], Legal Charge and other documents in my presence.

19. [The Acknowledgement] forms had been duly completed (i.e. with the respective names of [the Defendants] having been typed thereon) when I presented them to [the Defendants] respectively for their respective signatures. I explained and addressed to the Defendants separately their contents and their implications prior to their execution by the respective Defendants in my presence.

20. Further, Mr Yeung did not ‘order’ the Defendants to execute the Guarantees or other documents by signing at spaces pointed out by him. I was in attendance and never left the meeting room throughout the meeting. Mr Yeung was a very capable and experienced conveyancing clerk and he was always courteous to people he dealt with. If Mr Yeung and/or myself had been discourteous to the Defendants or had acted in any manner which was dissatisfactory to the Defendants at the meeting, which I categorically deny herein, the Defendants would have objected to his and/or my participation in a subsequent transaction referred to by the said bank officer.

21. The Defendants knew or should have known that the loan/banking facilities would not have been granted to the Borrower without the provision by the Borrower of the Legal Charge Over the Property and the Guarantee by them jointly and severally in favour of SCB. [The Wife] and [the Son] had never acted in deference to [the Husband] at the meeting and lunches. [The Wife and the Son] did not strike me then as behaving unnaturally or under pressure during the meeting. They were vocal and did not act timidly in my presence throughout the meeting or at the lunches.

22. [The Wife and the Son] showed no signs that they signed the Guarantees under any influence of [the Husband]. [The Wife and the Son] did not act in a passive manner when I explained to them separately the provisions of the Legal Charge, the Guarantee and the other documents referred to above. Further, [the Husband] had never behaved in an oppressive manner and I believe that he did not give any instructions to either [the Wife] or [the Son] or exercise any influence or pressure on either of them prior to their execution of the Guarantee and the other documents throughout the meeting.”

143.Mr Pang supplemented in his supplemental witness statement dated 19 August 2009 that he had not been given any idea or indication that the Husband was the sole equitable owner or controller of Peace Hill as alleged. The companies search referred to in his first witness statement revealed the shareholders to be T&T and Brizon, and the directors to be the Son and T&T. Nor had he been given any reason to believe that there was any undue influence being exerted over the Wife or the Son. He re-iterated that he was very conscious of the requirements to ensure the sureties were executing documents freely. The spate of case-law had impressed upon him the need to exercise great care to ensure that all the Defendants fully understood the effect of the Guarantee and were freely signing it. Neither the Wife nor the Son had showed any sign that they signed the Guarantee under any influence from the Husband.

144.Mr Yeung said in his witness statement dated 14 April 2003 confirmed what Mr Pang had said about the October Meeting. In particular, he confirmed that the meeting lasted for more than 1½ hours as Mr Pang explained in Cantonese the contents of the Guarantee, the Acknowledgement, the Certificate and other documents very clearly and slowly to the Defendants. After the Defendants and Mr Ho expressed that they understood the documents, he assisted Mr Pang in presenting the respective documents to the Defendants and Mr Ho (where signing by them of the documents was necessary) for signing in the presence of Mr Pang.

145.In his oral testimony, Mr Yeung said he could not now recall the October Meeting but stressed that there was nothing usual about it. It was one of the usual conveyancing cases that he had handled over many years of his practice.

G.3. Evaluation and findings

146.I have already explained why some pointers arising from the events preceding the October Meeting have cast considerable doubt on the Defendants’ version. I would add that given my finding that the Defendants and Mr Lie had given untrue evidence on the Defendants’ personality and relationship and the involvement in Peace Hill, their evidence as to how the October Meeting was conducted must be equally doubtful. The notion that they accepted Mr Pang’s representation that the signing of the documents was a mere formality defies common sense.

147.I am not impressed by the Wife’s evidence because as I have observed, her evidence bears the hallmark of a rehearsed piece.

148.The Son’s evidence is far from satisfactory. I just need to highlight two aspects. He said he did not know he was going to sing a guarantee prior to the Meeting, he suddenly realized it at the Meeting hesitated because he did not want to give a guarantee, but signed because of the presence of his father. That does not sit well with the fact that a copy of the Guarantee had been faxed to him and his father the day before. And as I have found, he must realise that he was going to sign the Guarantee at the coming Meeting. Further, he had experience of giving a personal guarantee before. He must know that when banks lent money to Peace Hill, they would often require a personal guarantee from him as director. I find that he must be aware of the need for the Guarantee before he attended the October Meeting.

149.The Son also claimed that after the October Meeting, he received a call from Mr E. Lam. He told Mr E. Lam that everything was signed in a rush and no one had any opportunity to read or have explained the documents. It all seemed cursory. Mr E. Lam promised to get back to him but did not. I find this allegation unbelievable. The complaint is a serious matter. I can see no reason why Mr E. Lam did not follow it up. As rightly said by Ms Leung, if that had in fact occurred, it would have been followed up by SCB as a serious or unusual incident. But there was no attendance note on the file. I can see no reason why the Son did not pursue the matter further, including at those numerous meetings that he had had with the bank officers in 1999 and thereafter when his father was not present. He said he had already signed the Guarantee and there was nothing he could do further. Besides, he still trusted his father very much. His explanation is simply disingenuous.

150.Mr Lam and Mr Liu attacked Mr Pang’s credibility over the so-called “box ticking” incident. The Defendants’ case is that the boxes on the Acknowledgement forms were not ticked at the October Meeting when they signed them. They raised as early as in 2001 this particular point to support their version as to how the October Meeting was conducted. The copy Acknowledgment forms disclosed by the Solicitors was the un-ticked version whereas the copy produced by SCB, which they received from the Solicitors after the October Meeting, was ticked. Mr Pang first said in his first witness statement that the Acknowledgement forms were duly completed at the October Meeting. In his supplemental witness statement, he said the usual practice was to tick the boxes and explain to the signatory and then have them sign the form. However, he could not now recall if the boxes in the Acknowledgement forms had been ticked before the Defendants signed them. Under cross-examination, he said it was his belief that the boxes had been ticked one day before the Meeting. Mr Yeung said that he did not tick the boxes and that he did not have a ticked version in his file. When he sent out the executed documents to SCB after the October Meeting, the boxes were not ticked. He however did not know who ticked the boxes. Mr Lam and Mr Liu submitted that Mr Pang’s evidence on this incident was unsatisfactory and adversely affected his evidence as to how the October Meeting was conducted.

151.However, I agree with Mr Stock’s submission that the point is of little significance. On the evidence before me, it seems that the boxes in the Acknowledgement forms were not ticked at the October Meeting, as proved by the fact that the copies kept by the Solicitors were the un-ticked versions. But it does not necessarily follow that that Mr Pang had not explained in detail the contents of the Guarantee, the Acknowledgement and other documents to the Defendants before they signed them. Mr Pang’s evidence on this matter is not entirely satisfactory but it does not affect his overall credibility.

152.There are also some minor discrepancies in Mr Pang’s evidence. In order not to overburden this Judgment, I will not discuss them here. Suffice it to say that I have duly considered all the points taken by Mr Lam and Mr Liu in attacking his credibility. I do not think they affect his overall credibility.

153.On balance, I find Mr Pang’s evidence more believable than the Defendants’. His evidence is also supported by what Mr Yeung had said in his witness statement, which I accept.

154.For the above reasons, I find that at the October Meeting Mr Pang had explained the contents of the documents including the Guarantee, the Acknowledgements and the Certificate to the Defendants and he had not made any misrepresentation to the Defendants that it was a mere formality to sign them as alleged. And the Wife and the Son did sign the Guarantee and other documents independently and voluntarily, being free from any alleged undue influence by the Husband. In fact, I find that there was no undue influence as alleged. For completeness, I also find that Mr Pang was not aware of the fact that the Husband was the beneficial owner of Peace Hill.

H. EXECUTION OF THE GUARANTEE EXPLAINED

155.The thrust of the Wife’s and the Son’s evidence is that they were entirely dependent in financial terms of the Husband and the family business, Peace Hill. The Son was then a director. And the Wife was a hidden director. That being the case, it was only nature for them to be willing to sign personal guarantees for Peace Hill and other family businesses. Execution of the Guarantee by them is readily explained by their relationship with Peace Hill rather than any alleged undue influence by the Husband.

I. ANSWERING THE ISSUES

156.I will now answer the Issues listed out at paragraph 12 above as follows.

Issue 1(1)

157.The Husband was the sole beneficial owner of Peace Hill. He had overall supervision of Peace Hill but not to the exclusion of the Wife and the Son as alleged.

Issue 1(2)

158.Presently formulated, it does not arise.

Issue 2

159.Each of the Wife and the Son was fully aware of the nature, terms and effect of the Guarantee.

Issue 3

160.Each of the Wife and the Son was not subject to any undue influence of the Husband as alleged. They raise undue influence in order to evade liability. But they have failed to make it out. The defence on undue influence fails in limine.

Issues 4 and 5

161.Presently formulated, they do not arise. For completeness, I will say that Mr Pang had duly advised the Wife and the Son the matters listed in Issue 5(1) in the presence of the Husband.

Issue 6

162.Presently formulated, it does not arise. Again for completeness, I repeat my finding above that Mr Pang did not make the misrepresentation as alleged. The Wife’s defence on misrepresentation and non est factum fails.

Issue 7

163.It does not arise.

Issue 8

164.In substance, the question is : what is the quantum of loss and damage suffered by SCB as against the Wife and the Son? The undisputable evidence is this. Peace Hill left the principal sum of HK$6,620,156 under the fixed loan and HK$310,985.32 under “overdraft” outstanding. As explained by Ms Leung, Peace Hill did not enjoy any overdraft either under the 1997 or the 2000 Facility Letter. What happened was the overdraft occurred in Peace Hill’s saving account, which was used by Peace Hill to make monthly repayment of the fixed loan. The savings account went into overdraft because Peace Hill did not deposit any money into the account to repay the instalments due in November and December 2000 of the fixed loan, whether by way of principal or interest. The entire overdraft of HK$310,985.32 was therefore attributable to the repayment towards and therefore and the reduction of the fixed loan for those two months. The overdraft is and should be treated as part of the fixed loan. This brings the total principal amount of the fixed loan to HK$6,931,141.32. As between SCB and the Wife and the Son as guarantors, SCB is entitled to charge interest at the Guarantee Rate, that is, 9.5% per annum above the prime rate from the time when SCB made a demand on them under Clause 1(b) of the Guarantee, which SCB did on 11 December 2000, and to compound such interest. The only satisfaction that SCB has so far obtained is the net proceeds arising from the sale of the Property in the sum of HK$2,577,508.07 in October 2003, which had already been applied to partially satisfy the then indebtedness. The principal plus interest at the Guarantee Rate with monthly rests from 11 December 2000 up to and including 21 June 2010 but giving credit for the said net proceeds amounted to HK$23,175,752.26. The Guarantee Rate will continue to apply until full payment under Clause 1(b) before and as well as after judgment.

Issue 9

165.It does not arise.

J. ORDERS

166.I will make the following orders :

(1) judgment be entered for SCB against the Wife and the Son jointly and severally for HK$23,175,752.26 with interest at the Guarantee Rate from 22 June 2010 onwards until full payment;

(2) the Wife’s and the Son’s counterclaim against SCB be dismissed;

(3) SCB’s claims against the Solicitors be dismissed; and

(4) the Wife’s claim for damages against the Solicitors be dismissed.

167.On costs, I will direct the parties to submit and exchange their written submissions within the next 28 days. I will then dispose of it on paper.

Ms Lisa K.Y. Wong, SC, instructed by Messrs Tsang, Chan & Wong, for the Plaintiff

Mr Douglas Lam, instructed by Messrs Chan, Tang & Kwok, assigned by the Director of Legal Aid, for the 2^nd Defendant

Mr Liu Cheong Wang, Jerome, instructed by Messrs Cheung & Choy, for the 3^rd Defendant

Mr Alexander Stock, instructed by Messrs Fred Kan & Co., for the 4^th Defendant

Annex

STATEMENT OF AGREED FACTS

1.  Mr Li Wai Ping (李偉平) (“the Husband”) and Madam Gosal Teinnie (吳彩珍) (“the Wife”), the 1^st and 2^nd Defendants respectively, are husband and wife.

2. The 3^rd Defendant, Mr Li Tso Bun Benny (李祖斌) (“the Son”), is their son.

3. Peace Hill Development Limited (“the Borrower”) became a customer of Standard Chartered Bank (now known as Standard Chartered Bank (Hong Kong) Limited) (“the Bank”).

4. As at October 1997,  

(1) The registered shareholders of the Borrower were T&T (Nominees) Company Limited (“T&T”), a HK company, as to 60% and Brizon Holdings Limited, a BVI company, as to 40%.

(2) The registered directors of the Borrower were the Son and T&T.

5. Although the Husband was not registered as either a shareholder or director of the Borrower, he was an authorized signatory of the Borrower and had given personal guarantees for the Borrower’s debts and liabilities to various other banks.

6. Although the Wife was neither a shareholder nor director of the Borrowers, she was an authorized signatory of the Borrower and had given personal guarantees for the Borrower’s debts and liabilities to various other banks.

7. The Son

(1) held the title of Managing Director (董事總經理) of the Borrower;

(2) was an authorized signatory of the Borrower;

(3) had given personal guarantees for the Borrower’s debts and liabilities to various other banks;

(4) was involved in certain aspects of the negotiations between the Bank and the Borrower for the grant, restructuring and repayment of the facilities mentioned below. The Husband was also involved in certain aspects of those steps.

8. By a Facility Letter dated 3 October 1997 from the Bank to the Borrower (“the 1997 Facility Letter”), the Bank offered to the Borrower various banking facilities (“the Facilities”) up to the limit of USD2.6 million, including a fixed loan of USD1.1 million (or HK$8.5 million) (“the Fixed Loan”) to be used by the Borrower to finance the purchase of Offices A and B, 11^th Floor, Chun Wo Commercial Centre, 23-29 Wing Wo Street and 26 Wing Kut Street, Hong Kong (“the Property”).

9.  It was an express term of the 1997 Facility Letter that interest on the Fixed Loan would be charged as follows :

(1) 0.5% per annum above the rate which the Bank would announce or apply from time to time as its prime rate for lending HK/US dollars (“the Prime Rate”); and

(2) 8% per annum above the Prime Rate on amounts not paid when due (“the Default Rate”).

10.    It was an also express term of the 1997 Facility Letter that the Facilities including the Fixed Loan were to be secured by various securities including a joint and several guarantee of the Husband, the Wife and the Son limited to the principal amount of USD2.6 million plus interest and the Bank’s costs and other charges and expenses.

11.    On the recommendation and at the request of the Borrower, by a letter dated 3 October 1997 from the Bank to Messrs. Robert W.H. Wang & Co. (“the Solicitors”), a firm of solicitors practising in Hong Kong and the 4^th Defendant herein, the Bank retained and gave instructions to the Solicitors to prepare, arrange for and attend to the due execution of the documents relating to the provision of the Facilities (“the Retainer”).

12.    The documents required to be executed included

(1) the joint and several guarantee by the Husband, the Wife and the Son; and

(2) a Form of Third Party Acknowledgment on standard forms provided by the Bank.  

13.    On receipt of the Retainer, the Solicitors assigned

(1) Mr Pang Chee Hoong (“Pang”), a solicitor in their employ, to carry out the Bank’s instructions; and

(2) Yeung Sau Loi, Eddie (“Yeung”), a conveyancing clerk in their employ, to assist Pang in this task.

14.    Pang and Yeung had met the Husband, the Wife and the Son before the Retainer, having acted for the Borrower in the agreement for the sale and purchase of the Property in about August 1997.

15.    Pang was aware of

(1) the fact that the Facilities including the Fixed Loan were to be made to the Borrower alone;

(2) the registered shareholding and directorship of the Borrower.

16.    At a meeting held on 8 October 1997 at the Solicitors’ offices, the Husband, the Wife and the Son signed in Pang and Yeung’s presence, inter alia:

(1) a Guarantee dated 8 October 1997 (“the Guarantee”) whereby the Husband, the Wife and the Son and each of them jointly and severally guaranteed, as principal obligors, to pay and discharge, on the Banks written demands, all moneys then or thereafter advanced by the Bank to the Borrower up to USD2.6 million plus

(A) interest on all sums due from them to the Bank under the Guarantee at a rate or rates of 1.5% above the rate or rates at which the Borrower would have been liable to pay on the amounts demanded by the Bank [Clause 1(b)]; and

(B) all costs and expenses (on a full indemnity basis) arising out of or in connection with the recovery or attempted recovery by the Bank of moneys due to the Bank under the Guarantee [Clause 1(c)];

(2) three separate Form of Third Party Acknowledgment also dated 8 October 1997 (“the Acknowledgments”), each of which on its face acknowledged, inter alia, that prior to the execution of the Guarantee by them, Pang had, at a personal meeting in the absence of the Borrower, pointed out to her/him:

(A) the desirability of having independent legal advice prior to her/his execution of the Guarantee;

(B) that her/his liability under the Guarantee for the obligations of the Borrower to the Bank was limited to USD2.6 million together with interest and other charges and expenses specified in the Guarantee;

(C) that enforcement of the Guarantee may result (subject to the said limit of USD2.6 million) in her/his having to pay all monies owed by the Borrower to the Bank; and

(D) that neither the Bank nor its representative (namely, the Solicitors acting by and/or through Pang) had acted as the surety’s financial or legal advisor in explaining the aforesaid to them;

(3) a “Certificate of Independent Legal Advice” also dated 8 October 1997 (“the Certificate”) which on its face confirmed that he/she had been advised by the Solicitors to seek separate and independent legal advice relating to the contents and legal implication of the Guarantee and that he/she had read through the whole of the Guarantee and fully understood its contents and legal implication;

17.    The Husband, the Wife and the Son were present in the same room throughout this meeting.

18.    On the same day, a meeting of the board of directors of the Borrower took place at which a resolution was passed and minutes were signed by the Son recording amongst other things that the Son had declared “that he was to be regarded as being interested in the transaction to the extent that he was the son of [the Husband] and [the Wife]”.

19.    On the same day, the Solicitors reported by letter to the Bank that among other documents relating to the provision of the Facilities by the Bank to the Borrower, the Guarantee and the Acknowledgments had been duly executed by the Husband, the Wife and the Son and that the Bank may permit the draw down and operation of the Facilities.

20.    Subsequently, the Bank made available to the Borrower the Facilities, in particular, the Fixed Loan.

21.     By a Facility Letter dated 15 February 2000 from the Bank to the Borrower (“the 2000 Facility Letter”), the Bank agreed to make available to the Borrower a fixed loan facility of HK$7,900,000[10] on, inter alia, the following express terms:

(1) that the Borrower would pay interest monthly in arrears at the

rate of 1.5% per annum above the Prime Rate;

(2) that the Borrower would pay interest at the Default Rate on amounts not paid when due;

(3) that the Borrower would make repayment by 96 monthly instalments commencing on 9 April 2000 as follows :

(A) HK$150,000 each for the 1^st to 24^th instalments;

(B) HK$60,000 each for the 25^th to 95^th instalments; and

(C) HK$40,000 for the 96^th instalments.

22.    By letters dated 11 December 2000, the Bank demanded the Husband, the Wife and the Son for payment of HK$6,949,459.01 together with interest up to and including the date of actual repayment.

23.    By letters dated 18 December 2000, the Bank’s then solicitors, Messrs. Deacons, demanded the Husband, the Wife and the Son for payment of HK$6,953,803.71 together with interest up to and including the date of actual repayment.

24.    On 1 March 2001, the Bank obtained judgment against the Borrower in the sum of HK$7,071,696.46 with interests and costs and an order for possession of the Property in HCMP 6556/2000.  The Property was subsequently sold by the Bank.

25.    Further, on 20 August 2001, the Bank obtained summary judgment against the Husband for the sum of HK$6,953,803.71 together with interest and costs.  On 27 February 2002, the Husband was adjudged bankrupt by this Court upon a petition presented by the Bank on 10 December 2001 in High Court Bankruptcy No.HCB11963/2001.