In Bank of China (Hong Kong) Ltd v Leung Wai Man ([2011] 4 HKLRD 707) a husband and wife guaranteed the indebtedness of S Ltd to the bank. They also gave the bank a charge over their home. The husband did so because he hoped to become an employee or part owner of S Ltd. The wife joined in because she trusted her husband’s judgment in these matters and thought that she should defer to him. Things went badly and the bank sought to enforce its rights under the guarantee and charge.
The couple first sought to rely on misrepresentation as against the bank. They claimed to have told the bank’s employee responsible for the arrangement that they could not meet any liability exceeding HK$1 million. The charge was an all-monies charge and their eventual liability was higher than HK$ 1 million. The husband claimed that the employee had smiled and nodded at the suggestion that the liability was capped at HK$1 million and that this was an implied representation that the liability was so limited. This failed on the facts. In any event, silence and inaction do not amount to a representation unless there is a duty of disclosure or an important part of a representation is withheld ([44]).
The wife’s defence based on undue influence failed. The sources of the relevant legal principles were identified ([53]) as were the points to be considered when a wife seeks to set aside a guarantee in circumstances such as these ([54]).
There was no evidence of undue influence here ([56]). Here there was evidence pointing to the relationship between the husband and wife being one of trust and confidence ([56]). Even on this point, however, the court had to recall that in any healthy marriage there was a normal level of mutual trust that would not suffice for the purposes of undue influence ([57]). There was nothing about the transaction that called for an explanation since it was for the joint advantage of the husband and the wife: the couple secured an immediate benefit in that the original charge over their home had been paid off as part of the arrangement and they had hopes that the husband would secure an attractive business opportunity as a result of the arrangement ([58]).
As for the bank’s involvement, even if there had been undue influence there was nothing to put the bank on inquiry:
‘There is no evidence in the present case to show that the bank had suspected that the first defendant had exerted undue influence on the second defendant. In such circumstances, the bank did not have any responsibility to make inquiry.’ (Carlye Chu J at [59]).
Michael Lower
