Deutsche Bank v Orient Profit Investment Ltd [2025] HKCFI 5308 is a rather extraordinary case, where a defendant “may well have been lying about lying, because it would help his wife’s case and (indirectly) his own”.
Key takeaways are:
- Context is key, particularly the surety’s commercial background and prior knowledge of loan and security
- That the decision to provide security may be a difficult one made under heated argument does not mean it is made without free will
- Etridge (No. 2) cautions against relying on presumptions of undue influence in husband and wife cases – the court must instead consider all relevant facts and circumstances
- Once the court finds against actual undue influence, there can be no question of finding presumed undue influence
The facts are relatively straightforward: the Plaintiff-bank advanced a loan to a corporate vehicle (“EGL”), 60% owned by a Mr. Lam (“Lam”) and 20% owned by his wife, Chan. Lam and Chan were major indirect shareholders of a listed company (“Listco”) through EGL.
The loan was secured by a guarantee from Lam and a pledge of Listco shares by EGL. Crucially, subsequently a “Second Mortgage” over a property was offered by Chan’s corporate vehicle (“Orient Profit”).
EGL later defaulted, and the bank commenced action against Lam (under the guarantee) and mortgagee proceedings against Orient Profit and EGL. Both proceedings were tried together before DHCJ Reyes SC who rejected the wife’s undue influence defence (as well as Lam’s myriad defences).
Applying Etridge (No. 2), DHCJ Reyes SC pointed out that “there is no automatic presumption of undue influence merely because a case involves a husband-and-wife relationship”. Rather, “Husband and wife typically repose mutual trust and confidence in each other. That is not enough to establish that, whenever a wife does what a husband asks her to do, that the wife acted under the husband’s undue influence”, and accordingly, “when assessing a husband’s statements or conduct, so long as such behaviour does not go beyond the bounds of what may be expected of a reasonable husband in the circumstances, the court should not characterise the same as undue influence”.
On the facts, the court rejected the wife’s evidence, and found that Lam “may well have been lying about lying, because it would help his wife’s case and (indirectly) his own”. Further, His Lordship held that:-
“There was every reason for Ms Chan to provide a 2nd mortgage over the Silver Crest property, when balanced against the consequences of an enforcement by Deutsche Bank (1) against [Listco’s] shares, risking a collapse in [Listco’s] share price, and (2) against her husband based on the personal guarantee, risking her husband’s solvency.”
Given the court’s conclusion that no actual undue influence was exerted, there can be no question of finding presumed undue influence. Indeed, Etridge (No. 2) cautions against relying on presumptions of undue influence in husband and wife cases. The court must instead consider all relevant facts and circumstances in such situations to discern whether there has been actual undue influence.
As regards Lam’s defences, the court rejected them as “wild allegations”. What might be of interest to the banking community is the court’s refusal to regard the default interest charged (COF + 10%) as “evidently extravagant”, applying the “modern” approach on penalty endorsed in Cavendish Square Holding BV v Makdessi [2016] AC 1172.
The full judgment is available at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=174077&currpage=T
Jenkin Suen SC and Tom Ng, instructed by Deacons, acted for the Plaintiff bank in both actions.
