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Status:

Positive or Neutral Judicial Treatment

Esquire (Electronics) Ltd & Another v Hong Kong and Shanghai Banking Corp Ltd & Another
Court of Appeal 12 October 2006

Case Analysis
here !eported Case "igest
200!" # $%&'( )#*+ 2006" $%,C 1-*0+ Su#$ect% A.enc/ Associated su#$ect(s)% Contract la0+ Courts and 1udicial s/stem+ 2an3in. and finance Su&&ary% A.enc/+ fiduciar/ dut/+ mort.a.ee+ ban3 procured mort.a.or+ client to enter into po0er of attorne/ 4POA5 6b/ 0a/ of securit/6 and for purpose of sale of propert/+ 07et7er mort.a.ee+ ban3 breac7ed dut/ b/ 7ast/ sale in risin. mar3et to alle.ed close associate+ e8tent of dut/ resolved b/ terms of POA+ dut/ same or similar to t7at of mort.a.ee under sale9 namel/ to obtain proper price+ no breac7: full mar3et value ac7ieved and not close associate Contract la0+ economic duress+ 3e/ 0as ille.itimac/ of pressure Contract la0+ undue influence+ 07et7er mort.a.ee+ ban3 e8erted undue influence on mort.a.or+ client to sell propert/+ claim not made out Courts and 1udicial s/stem+ trial+ dela/+ 1!+ /ear dela/ bet0een events and trial meant contemporaneous documentation and in7erent probabilities particularl/ important Courts and 1udicial s/stem+ 1ud.ment+ dela/+ 16+ mont7 dela/ bet0een trial and 1ud.ment unacceptable 2an3in. and finance+ mort.a.e+ fiduciar/ duties or mort.a.ee+ ban3 A#stract% :n 1*-19 2 provided a loan and ban3in. facilities to P9 a business9 of up to ;#00 million9 secured b/9 inter alia9 a mort.a.e over a propert/ 4t7e Propert/5 t7at P 7ad purc7ased for ;1-0 million< Subse=uentl/9 P fell into financial difficulties< T7is necessitated a restructurin. arran.ement in 1*-) 0it7 a consortium of ban3s led b/ 2< 2/ 1*->9 t7e value of t7e Propert/ 7ad fallen to some ;-0 million< P?s financial difficulties continued and 29 at P?s re=uest9 periodicall/ .ranted ne0 facilities and for.ave part of t7e debt< @rom April 1*->9 2 periodicall/ proposed sellin. P?s properties9 includin. t7e Propert/9 and P indicated it 0ould be a.reeable at t7e ri.7t price provided 2 .rant it furt7er relief< :n Aarc7 1*-!9 meetin.s too3 place to discuss furt7er restructurin. for t7e eventual complete disc7ar.e of P?s debt9 durin. 07ic7 2 insisted t7at t7e Propert/9 no0 valued at ;161 million be sold< Alt7ou.7 P no lon.er 0is7ed to sell it .iven t7e risin. propert/ mar3et9 it a.reed and e8ecuted a po0er of attorne/ in favour of 2 4t7e POA5 6b/ 0a/ of securit/6 to effect t7e sale< Bnder an April 1*-! a.reement9 2 0as to receive t7e net proceeds of t7e sale of t7e Propert/+ 2 0ould 0aive more of P?s debt+ and follo0in. pa/ments b/ P over a fiveC /ear period9 t7e remainin. balance 0ould be 0aived and released 4t7e 1*-! A.reement5< :n Aa/ 1*-!9 t7e Propert/ 0as sold to a compan/9 D9 for ;1-0 million 4t7e Sale5< P e8ecuted t7e Sale document< Some of D?s directors 0ere also directors and minimal s7are7olders of a ban3 07ic7 0as a subsidiar/ of 2+ 2?s .eneral mana.er 0as also a director of t7at ban3+ and t7e c7airman of t7at ban3 0as an adviser to 2?s 2oard< :n 1**)9 P brou.7t proceedin.s a.ainst 2< @irst9 P claimed 2 7ad breac7ed its fiduciar/ dut/ as P?s a.ent to act in its best interests9 b/ a 7ast/ sale of t7e Propert/ to D9 a close associate< Second9 t7at 2 7ad e8erted economic duress and undue influence on P on t7e basis t7at P 0as forced to a.ree to sell t7e Propert/ and e8ecute t7e POA as a result of an ille.itimate t7reat b/ 2 at a meetin.

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on 12<Aarc7 1*-!< Specificall/9 P alle.ed t7at 2 7ad t7reatened t7at unless P a.reed9 2 0ould insist on pa/ment of P?s debts includin. ;#0 million 07ic7 2 3ne0 0as not in fact o0in. 4t7e ;#0 million overc7ar.e59 failin. 07ic7 2 0ould ta3e steps resultin. in P?s li=uidation 4t7e alle.ed t7reat5< T7e Jud.e found for P< 2 appealed< $eld9 allo0in. 2?s appeal9 t7at: E7et7er breac7 of fiduciar/ dut/ 415 4Per 'o.ers FCP9 Tan. JA a.reein.5 T7ere 0as no breac7 of fiduciar/ dut/ b/ 2< 2?s onl/ fiduciar/ duties in t7e circumstances 0ere t7at of a mort.a.ee in sellin. t7e Propert/9 namel/ to obtain t7e full price for t7e Propert/< 2 7ad done so< T7e circumstances in =uestion 0ere t7at t7e Propert/ 0as bein. sold because 2 0as t7reatenin. to e8ercise its po0ers as mort.a.ee+ and 2 caused P to e8ecute t7e POA in order to avoid t7e appearance of t7e sale bein. a distress sale9 somet7in. t7at 0ould benefit bot7 2 and P< Also if t7ere 0as an/ doubt about t7e e8tent of 2?s duties9 it 0as to be resolved b/ t7e terms of t7e POA< A fiduciar/ relations7ip could not be superimposed upon a contract in suc7 a 0a/ as to alter t7e operation t7e contract 0as intended to 7ave< T7e true construction of t7e arran.ement bet0een 2 and P 07ic7 .ave rise to t7e POA 0as t7at t7e Propert/ 0ould be sold at its full mar3et value 4@arrar v @arrars &td 41--*5 &' )0 C7 ( #*>9 $ospital Products &td v Bnited States Sur.ical Corp 41*-)5 1>6 C&' )1 applied5< 4See paras<102C10)<5 425 4Per Tan. JA5 2 did not o0e P t7e full dut/ of lo/alt/ and .ood fait7 normall/ o0in. b/ an a.ent to its principal 4$ospital Products &td v Bnited States Sur.ical Corp 41*-)5 1>6 C&' )1 applied5< 4See paras<1!0C1!#<5 4#5 4Per 'o.ers<FCP9 Tan. JA a.reein.5 ,ven if 2 o0ed P suc7 duties9 t7ere 0as no close relations7ip bet0een 2 and D and no reason 0as su..ested 07/ 2 0ould 7ave 0is7ed to besto0 an/ special benefit on D9 or t7e directors of t7e ban3 in =uestion 07o 0ere also directors of D9 and 2 7ad no incentive to ac7ieve a lo0er price t7at t7e best obtainable 42urrell v 2urell?s Trustees 41*1>5 SC ###+ applied5< 4See paras<10!C110<5 4)5 4Per 'o.ers<FCP9 Tan. JA a.reein.5 As to t7e speed of t7e Sale9 man/ propert/ deals 0ere arran.ed ver/ =uic3l/ and t7ere 0as no evidence of an/t7in. sinister< 4See paras<112C11#<5 4>5 4Per Stoc3 JA9 Tan. JA a.reein.5 T7e relations7ip bet0een 2 and P 0as not a .eneral fiduciar/ one< 'at7er9 it 0as limited b/ t7e POA9 t7e contract 07ic7 created t7e dut/9 and b/ t7e fact t7at on an/ vie0 2 7ad its o0n le.itimate interests to safe.uard< T7e relations7ip remained close to t7at of a mort.a.or and mort.a.ee< $o0ever9 2?s duties 0ere not to be vie0ed t7rou.7 =uite t7e same prism as for a mort.a.ee upon sale9 alt7ou.7 t7e result in terms of duties o0ed 0as little different< T7e POA 0as e8ecuted as part of a pac3a.e 07ic7 contemplated steps to assist not onl/ 2 but also P in reducin. its indebtedness to 7elp P?s eventual recover/< :n li.7t of t7e 7istor/9 t7e terms of t7e POA and t7e 1*-! A.reement9 t7e due re.ard 07ic7 2 7ad to 7ave to P?s interests9 t7ere 0as no breac7 of t7e fiduciar/ dut/ if P acted bona fide to obtain a fair price for t7e Propert/< T7at 0as t7e case 7ere: 2 7ad not benefited financiall/+ D?s purc7ase 0as at its initiative in response9 not to some personal approac7 b/ 29 but to a 0ide advertisin. campai.n and 0as at arms? len.t7+ t7e price 0as proper+ and no sensible reason for rus7in. t7e sale to favour D could be provided< T7e Jud.e assumed t7at 07ic7 2 0as understandabl/ not prepared to assume: t7at t7e mar3et?s continued rise 0as inevitable 4$ospital Products &td v Bnited States Sur.ical Corp 41*-)5 1>6 C&' )19 $enderson v Aerret S/ndicates &td 1**>" 2 AC 1)>+ applied+ ,8 parte @order 41--15 2> Sol Journ !209 2urrell v 2urell?s Trustees 41*1>5 SC ###+ 9 'obertson v 'obertson 1*2)" NG&' >>29 2oardman H Anot7er v P7ipps 1*6!" 2 AC )6+ 9 2ristol and Eest 2uildin. Societ/ v Aot7e0 1**-" C7 1+ 9 %ao &ee H Iip v %ao $oi

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Ian H Ot7ers 200#" # $%&'( 2*6+ 9 Silven Properties &td v 'o/al 2an3 of Scotland Plc 200)" 1 E&' **!+ considered5< 4See paras<1#*C1))9 1)-C 1>1<5 E7et7er economic duress 465 4Per Stoc3 JA9 Tan. JA a.reein.5 T7e 3e/ to provin. economic duress 0as proof of t7e ille.itimac/ of t7e su..ested pressure< Auc7 commercial activit/ necessaril/ involved pressure9 often considerable and sometimes over07elmin.9 e8ercised b/ parties 07o found t7emselves in po0erful bar.ainin. positions< 2ut t7at of itself 0as not ille.itimate< E7et7er t7e causative act must be unla0ful or could be la0ful did not need to determined 7ere9 as on eit7er test9 t7e facts 0ere a.ainst P bot7 as to t7e nature of t7e pressure9 and causation< T7e Court 0as entitled to upset t7e Jud.e?s findin. t7at t7e alle.ed t7reat 0as at t7e 7eart of discussions bet0een t7e parties9 and t7at it caused P to sell t7e Propert/ 42arton v Armstron. H Ot7ers 1*!6" AC 10)+ 9 Commercial 2an3 of Australia &td v Amadio 41*-#5 1>1 C&' ))!9 Bniverse Tan3s7ips :nc of Aonrovia v :nternational Transport Eor3ers @ederation H Ot7ers 1*-#" AC #669 Crescendo Aana.ement Pt/ &td v Eestpac 2an3in. Corp 41*--5 1* NSE&' )09 (ims3al S7ippin. Co SA v :nternational Transport Eor3ers @ederation 1**2" 2 AC 1>2+ 9 CTN Cas7 and Carr/ &td v Jalla7er &td 1**)" ) All ,' !1)+ 9 $u/ton SA v Peter Cremer Jmb$ H Co 1***" 1 &lo/d?s 'ep 620+ 9 Australia H Ne0 Gealand 2an3in. Jroup v %aram H Ot7ers 4200>5 6) NSE&' 1)* considered5< 4See paras<1>2C1>!9 166<5 4!5 4Per 'o.ers<FCP9 Tan. JA a.reein.5 P?s a.reement to sell t7e Propert/ as part of t7e overall sc7eme of refinancin. its debts 0as due to t7e t7reat t7at s7ould it not do so9 2 0ould call in t7e mort.a.e9 07ic7 it 0as perfectl/ entitled to do< T7us9 an/ alle.ation of economic duress founded on t7e alle.ed t7reat failed at t7e first 7urdle< And 2?s re=uirement t7at t7ere be t7e Sale 0as not ille.itimate< E7at too3 place in 1*-! 7ad to be considered in li.7t of t7e fact t7at 2 7ad supported P to a considerable e8tent and 7ad b/ t7at sta.e 0aived some ;100 million in interest< :t 0as for t7e mort.a.ee to decide t7e appropriate time to sell t7e Propert/< To 7old on to it 0ould 7ave ris3ed a do0nturn in t7e mar3et< 4See paras<!!C!*9 11!9 11-9 1209 122<5 E7et7er undue influence 4-5 4Per 'o.ers<FCP9 Tan. JA a.reein.5 P?s case on undue influence 0as also unsustainable< ,ven if a corporation could be sub1ect to undue influence9 for e8ample 07ere t7e ban3er 0as a trusted adviser9 t7at situation did not e8ist 7ere< T7is 0as a case9 =uite simpl/9 of a mort.a.or and borro0er on t7e one 7and and a mort.a.ee and lender on t7e ot7er< 2?s primar/ dut/ 0as to its s7are7olders< :t 0as onl/ ri.7t to 6rescue6 P if t7is 0as in t7e interests of 2 and its s7are7olders and if it 0ere to provide t7e finance and respite in order t7at P mi.7t recover financiall/9 it 0as proper for 2 to insist on suc7 supervision of P?s business as it t7ou.7t necessar/< 4See paras<12!C12-<5 4*5 4Per Stoc3<JA9 Tan.<JA a.reein.5 @or t7e reasons above re.ardin. economic duress9 t7e Jud.e?s findin. t7at t7e influence e8erted b/ 2 0as undue and causative could not be sustained< 4See para<16!<5 (ela/s 4105 4Per 'o.ers FCP9 Tan. JA a.reein.5 T7e dela/ in t7is case of over 16 mont7s bet0een t7e end of trial and deliver/ of t7e 1ud.ment 0as unacceptable< Comparin. t7e transcript and t7e 1ud.ment9 it 0as clear t7at t7e Jud.e 7ad for.otten important conclusions 7e 7ad reac7ed durin. t7e 7earin. 4,8pectation Pt/ &td v P'( 'ealt/ Pt/ &td 20* A&' >6- applied5< 4See paras<#C6<5 4115 4Per Stoc3 JA9 Tan. JA a.reein.5 T7e dela/ of 1! /ears bet0een events and trial rendered of particular importance factors suc7 as

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contemporaneous documentation and in7erent probabilities to 07ic7 t7e Jud.e paid too little re.ard and conversel/9 too muc7 upon 7is assessment of c7aracter< :n t7e event9 t7ere 0as not onl/ an absence of sufficient evidential foundation for t7e core findin.s of fact9 but t7e contemporaneous documentation9 t7e contradictions bet0een t7at and t7e oral evidence9 and t7e in7erent probabilities in t7eir 7istorical conte8t9 pointed clearl/ in 2?s favour on t7e t7ree issues at 7and 4,8pectation Pt/ &td v P'( 'ealt/ Pt/ &td H Anot7er 4200)5 1)0 @C' 1! applied+ 2enma8 v Austin Aotor Co &td 1*>>" AC #!0+ 9 Tin. %0o3 %eun. v Tam (ic3 Iuen H Ot7ers 420025 > $%C@A' ##6+ considered5< 4See para<1#!<5 ,ditor?s note: P?s application for leave to appeal a.ainst t7is 1ud.ment 0as refused b/ t7e Court of @inal Appeal 4see unrep<9 @AAF 1* of 200!9 200!" $%,C ***+ 5<" Appeal T7is 0as t7e first defendantCban3?s appeal a.ainst a 1ud.ment of Eaun. J findin. t7at it 0as liable to t7e plaintiffCclient for breac7 of fiduciar/ dut/9 economic duress and undue influence 4see 200>" $%&'( #>-5< T7e facts are set out in t7e 1ud.ment<

"irect History

Court of Appeal Esquire (Electronics) Ltd & Another v Hong Kong and Shanghai Banking Corp Ltd & Another '())*+ , HKL!" -,./ '())0+ HKEC 12.) (Civil Appeal 3o ,1( o4 ())5) Leave to appeal re4used #y Court of Appeal Esquire (Electronics) Ltd & Another v Hong Kong and Shanghai Banking Corp Ltd & Another '())*+ HKEC -(0 (Civil Appeal 3o ,1( o4 ())5) Court of Appeal Esquire (Electronics) Ltd & Another v Hong Kong and Shanghai Banking Corp Ltd & Another '())*+ HKEC -(0 (Civil Appeal 3o ,1( o4 ())5) Leave to appeal re4used #y Court of @inal Appeal Esquire (Electronics) Ltd & Another v Hong Kong and Shanghai Banking Corp Ltd & Another '())*+ HKEC ... (6iscellaneous 7roceedings 3o 1. o4 ())* (Civil))