Undue influence: bank not put on inquiry merely by disadvantageous transaction

In Bank of China (Hong Kong) Ltd v Leung Ngai Hang ([2006] HKCU 78, CA) Miss C and Miss L had been friends and business partners. They bought an investment property together. They borrowed money to fund the purchase into their names as joint tenants, the loan being secured by a legal charge. They subsequently remortgaged with the Bank of China replacing the fixed term loan with more general banking facilities. By this time, Miss C no longer had any business relationship with Miss L. One element of the loan package was the provision of open-ended banking facilities to Miss L’s business.

The loans were not repaid. The bank sold the property but there was an outstanding balance. Miss C relied on undue influence and misrepresentation as her defence.

This failed since there was nothing to implicate the bank in any wrongdoing (assuming there had been some impropriety). Was there anything to put the bank on inquiry ([14])? A disadvantageous transaction on its own was not sufficient to achieve this. There was nothing about the relationship between Miss C and Miss L to suggest that there was a risk that consent had been procured by some improper means ([17]).

In any event, it was not clear that the present transaction was manifestly to Miss C’s disadvantage. The money had been used to redeem an earlier charge. There were benefits in replacing a fixed term loan with general banking faclities ([18]).

Michael Lower

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