Article

Note: Issuer, Standard Chartered Bank, issued a US$2.6 million credit facility to Applicant, Peace Hill Development Ltd., an importer of plywood based in Hong Kong. Applicant secured facility with a joint and several personal guarantee executed by Beneficial Owner of Applicant and Personal Guarantors, the wife of Beneficial Owner (a shadow director of Applicant) and the son of Beneficial Owner (a director of Applicant). The facility was subject to Hong Kong law.

Applicant defaulted, and Issuer brought action against Beneficial Owner and Personal Guarantors to recover. Beneficial Owner was adjudicated bankrupt, and Personal Guarantors denied liability, alleging that they signed the personal guarantee because of undue influence of Beneficial Owner of which Issuer had constructive knowledge. Personal Guarantors counterclaimed for rescission of the guarantee.

The court, Hon. Poon, J., rejected Personal Guarantors' claim of undue influence and entered judgment in favor of Issuer.

The court found that Personal Guarantors did not satisfy the burden of proof for undue influence, focusing on (1) the personalities of the Beneficial Owner and Personal Guarantors and their relationship, and (2) Personal Guarantors' respective roles and involvement in Applicant. For the personalities of the parties and their relationship, the court found from initial witness statements that Personal Guarantors were not subservient to Beneficial Owner but were capable of conducting themselves freely and independently. Regarding Personal Guarantors' roles and involvement in Applicant, the court relied on documentary evidence that Beneficial Owner provided Issuer when applying for the facility that stated Personal Guarantors were involved in the financing of Applicant.

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