DYNAMIC ASSET MANAGEMENT LTD v. CHOI CHAU CHUNG by Choi Lam Hung, his Guardian ad litem

HCA 1566/2015

[2021] HKCFI 1334

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1566 OF 2015

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BETWEEN

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JUDGMENT

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Introduction

1.  The proceedings which are currently being tried before me commenced as a relatively (perhaps deceptively) simple action for recovery of a loan by the Plaintiff, which at the material times was a money lender registered under the Money Lenders Ordinance (Cap. 163) (“the MLO”) against the borrower defendant, Mr Choi Chau Chung (“Mr Choi”).

The Parties respective pleaded cases and their evolution

2.  It is said by the Plaintiff in its original statement of claim that in compliance with s.18 of the MLO and by an agreement in writing (“the Loan Agreement”) dated 20^th May 2015 (“the Relevant Time”) which was made between the Plaintiff as lender and Mr Choi as borrower, that the Plaintiff lent a principal sum of HK$1.5 million to him (“the Loan Amount”).

3.  It was further pleaded that interest would be paid under the said Loan Agreement at the rate of 3.5% per month. The Plaintiff pleaded that as of 9^th July 2015, Mr Choi had been in default, by failing to pay the Loan Amount and interest in a total sum of HK$1,588,027.40 under the Loan Agreement.

4.  The Plaintiff further reiterated the same at paragraph 6 of the same statement of claim when it pleaded this as a particular of the Loan Agreement pursuant to O.83A of the Rules of the High Court.

5.  The Plaintiff expressly pleaded at paragraph 6 that “the amount actually lent to the defendant was HK$1.5 million”.

6.  The Plaintiff then pleaded that notwithstanding repeated demands made by it, including a demand letter from the Plaintiff’s then solicitor Messrs H. Y. Leung & Co dated 22^nd June 2015 Mr Choi failed and/or refused to pay the outstanding sums and therefore the principal and interest were being sought.

7.  That letter which I have read stated that “you have borrowed from our client a sum of HK$1,500,000”.  Only one month after the Relevant Time, it sought the “outstanding Principal” of HK$1,500,000 and one month interest in the sum of HK$52,500 i.e. 3.5% on the basis that the amount actually lent was $1.5 million.

8.  By the time of the final iteration of the statement of claim i.e. the re-amended statement of claim, the Plaintiff had re-cast its case for reasons which I will further explain below.

9.  I will focus on the major differences and additions to its original claim:

(1) first of all, it is now pleaded that pursuant to the Loan Agreement and mortgage, the Plaintiff had actually paid a total sum of HK$1,267,300 (“the Reduced Amount”) after “deducting service fee in the sum of HK$232,700”, and as such the said service fee should not be counted as part of the loan and therefore the Plaintiff only claimed the Reduced Amount rather than the Loan Amount. It is therefore on that basis that the various particulars in the claim were therefore reduced to reflect that revised position.

(2) no doubt realizing the potential difficulties arising out of its claim the Plaintiff advanced a further alternative which was not dependent on the Loan Agreement. It pleaded as an alternative that the Reduced Amount was “advanced by the Plaintiff and received by the Defendant and was made under and as a result of a mistake of the Plaintiff on the fact that the Defendant had the mental capacity at all material times to enter into the loan agreement and mortgage and understand the general nature of the loan agreement and mortgage when he signed them. In fact, the Defendant was at all material times mentally incapable of signing the loan agreement and mortgage on 20^th of May 2015. If the Plaintiff had the knowledge that the Defendant did not have the mental capacity at all material times to enter into the loan agreement and mortgage, the Plaintiff would not have advanced the sum of HK$1,267,300 to the Defendant. By reason of the advancement of the monies to the Defendant in those circumstances the Defendant has been unjustly enriched.”

10.  It is therefore said that by reason of this alternative plea, the Plaintiff is (even in the absence of the Loan Agreement) entitled to restitution of the Reduced Amount as monies had and received by the Defendant.

11.  I now turn to the defence.

12.  It was pleaded on behalf of Mr Choi that he was approximately aged 74 at the Relevant Time.  He was retired and illiterate and was asked by a lady friend (“the Lady Friend”) to assist her to borrow a sum of about HK$700,000 and that he had agreed to do so.

13.  It is not entirely clear to Mr Choi, who is now acting through his guardian at litem, and also his son (“the Son”) what the exact arrangements were or what exactly the role of the Lady Friend was, and whether or not she had other accomplices.

14.  It is admitted that on or about 20^th May 2015, Mr Choi did sign the Loan Agreement, however it is pleaded that “the signing of the agreement and the related documents by the defendant and the withdrawal of the money allegedly paid by the plaintiff the defendant was procured by the defendant being manipulated by some persons (whose identity of most of them the defendant cannot recall or does not have knowledge)..”.

15.  Mr Choi avers that after signing the Loan Agreement:

(1) A HK$500,000 cash cheque was issued by Mrs KB Chau & Co (“KBC”) who were the solicitors for the Plaintiff, was cashed by the persons accompanying Mr Choi and therefore the money was collected by them and not by Mr Choi himself himself.

(2) Also on the same day another cheque in the sum of HK$757,300 was also issued by KBC and that sum was deposited into Mr Choi’s bank account by “somebody whose identity or the identity of most of them the Defendant does not have knowledge)”. It is then pleaded that Mr Choi was “arranged and manipulated to withdraw the said sum of HK$757,300 on the following day… and the sum of money was collected by somebody (whose or identity of most of them the Defendant cannot recall or does not have knowledge) accompanying the Defendant”.

16.  There was a further cheque of HK$10,000 which was also deposited in the account on 22 May 2015, and which was also pleaded to be collected in the same manner as the monies were in the earlier paragraph.

17.  A number of further or alternative defences are pleaded and in particular that of mental incapacity.

18.  Mr Choi avers that apart from suffering from other chronic diseases since 2011, he had been suffering from adjustment disorder and cognitive impairment, dementia and had received regular psychiatric treatment.

19.  In or about November 2014, Mr Choi further suffered from herpes zoster (also known as shingles) and after that he suffered from post herpetic neuralgia, mania, adjustment disorder and bipolar affective disorder.  He also had confusion and auditory hallucination. It was further averred that his mood was elated with grandiose delusion and his speech “was irrelevant and incoherent”.

20.  In short, his case is that he was suffering from severe cognitive impairment by reason of the matters aforesaid. Mr Choi was thus said to be mentally incapacitated at the Relevant Time and could not understand the nature and effect of the Loan Agreement.

21.  Importantly for reasons I will elaborate below, paragraph 8 of the defence avers that such mental incapacity “was / is apparent to any person dealing with him, in particular to the person or persons acting for and / or related to the Plaintiff company on the 20^th of May 2015 in relation to the loan agreement transaction” as alleged.

22.  Mr Choi also seeks to avoid the Loan Agreement or otherwise defend the claim on the basis of misrepresentation and also breach of the Loan Agreement and also for non-compliance with s.18 of the MLO.

23.  Another discrete basis for defending the claim and prosecuting the counter-claim relies on s.24 of the MLO because the effective interest rate is said to be in excess of 60%.  I will deal with that further below.

24.  In so far as the Plaintiff’s claim is anchored on restitution Mr Choi avers that the said sum is not recoverable as he does not admit to receiving the benefit of the money.

25.  Mr Choi’s counterclaim is in reality the mirror image of the Plaintiff’s claim. What is sought is consequential relief which flows from a declaration that the Loan Agreement is illegal and unenforceable and in any event that the Loan Agreement is avoided on the ground that Mr Choi was incapacitated at the time of entering into the agreement, and that the Plaintiff was ‘aware’ of the same. I use this term loosely here. While some authorities seem to suggest that to avoid a transaction entered by a person mentally incapacitated the counterparty to the transaction must ‘know’ of it, others refer to ‘must have known’.  I will deal with this in more detail below.

26.  Thus, Mr Choi seeks a declaration that the Loan Agreement is illegal, unenforceable and even if not illegal that he was incapacitated at the Relevant Time and that the Plaintiff “knew or ought to have known of such incapacity”.  The consequential reliefs concern various declarations and also that the registration of various documents which flow from the Loan Agreement be vacated from the Lands Registry. During the course of his opening, Mr Paul Harris S.C. who acted for Mr Choi identified one more such document. I indicated that I would deal with this application for amendment to the Statement of Claim de bene esse. I cannot see any prejudice to the Plaintiff as this flows from the same issues already pleaded. I therefore allow this amendment, on the basis of the draft which was presented to me.

27.  I now turn to the re-amended reply and the defence to counterclaim filed by the Plaintiff on 27^th of April 2020, focusing on the circumstances giving rise to the Loan Agreement.

28.  The Plaintiff, amongst other things refers to the fact that Mr Choi was required to produce a medical certificate “to prove his mental capacity”.

29.  It was further averred that Mr Choi attended the office of the Plaintiff with a woman who was referred to as the Lady Friend above.  The Plaintiff was not aware of her identity, save that when Mr Choi was asked to provide a person as his emergency contact he named her.  That person should be one Ms Chan Sai Yuk.

30.  It was also averred that Mr Choi agreed that the sum of HK$157,500 shall be applied for the repayment of the first three instalments of the Loan.

31.  In so far as the mental capacity of Mr Choi or what it appeared to the Plaintiff is concerned, it simply denies that Mr Choi’s speech was irrelevant and incoherent. It further averred that for a person "without knowledge of mental disorders and did not know the defendant in the past, he or she might not be able to know that the defendant was mentally unwell”.

32.  The final point to note regarding the pleaded case is that in response to an interrogatory, the Plaintiff via the affirmation sworn on 23^rd February 2016 by one Mr Lam Cheuk Fung (“Mr Lam”) who was said to be a ‘manager’ of the Plaintiff swore on oath that “the whole sum of HK$1.5 million had been lent and paid … to the Defendant”.  This is of course incorrect and at odds with later incarnations of the Plaintiff’s own case.

Procedural History

33.  There is then the matter of the procedural history of this case which should be explained in some detail because of its relevance to the present position.

34.  On 25^th September 2015 the Son was added as the guardian at litem in these proceedings.

35.  On 23^rd October 2015 and 19^th of April 2016, the Plaintiff took out two separate summary judgment summonses.  The second of these was dismissed by Master Hui on 18^th of May 2016 with costs, whereas the first of these O.1414 summons was adjourned for argument before a Judge in chambers.

36.  The summary judgement then came before Deputy High Court Judge Kwok S.C. on 3^rd August 2016 who dismissed the application with costs summarily assessed at HK$133,000 to be paid to Mr Choi forthwith.

37.  The learned Deputy Judge produced reasons for this Order and whilst I need not cite them at length, I think it is useful to cite those paragraphs which may be of relevance for present purposes. The important point is that the Plaintiff accepted that Mr Choi was a mentally incapacitated person as at 25^th of September 2015 which was just about four months from the date of the loan on 20^th May 2015.

38.  The Judge noted the document which was sought to be relied upon by the Plaintiff, namely the doctor’s certificate of attendance which had been alluded to earlier was in fact a certificate of attendance by one Dr David Hu dated 20^th of May 2015 (“Dr Hu Certificate”).

“HEART M.D. LTD

Dr. David C.K. Hu 胡中權醫生

MD, MRCS, FRCP, FACC

[Address, telephone and fax numbers]

Certificate Of Attendance 醫生證明書

20 May, 2015

To Whom It May Concern,

This is to certify that CHOI CHAU CHUNG attended the clinic today

76 year old man. No mental problem. Med: for glucose.

Bp 140/80 p. 70 He understands what he is doing and go for signing a mortgage.

Surgery for eyes and back.

Impression: He is here for medical certificate for mental competence.  He is aware of signing documents.  He is aware of signing documents and risks and goals involved.”

[Note: The repetition of “He is aware of signing documents” is written exactly as in the original.]”

(extracted from paragraph 13 of the Judgment)

39.  It would appear that Dr Hu is a cardiologist.  There are a number of observations which I will make in the course of these reasons but it is quite clear when one reads it, that it is primarily a certificate certifying the attendance of Mr Choi together with some ‘impressions’ which Dr Hu got from seeing Mr Choi, rather than purporting to be a certificate as to the mental capacity of Mr Choi.

40.  It is clear that Dr Hu was not certifying Mr Choi could understand those documents since the emphasis is on the awareness of the "signing” of the documents. I should make it clear at once I am not criticising what was done by him here. Obviously, a professional can only do as per his specific instructions.

41.  The Judge rejected the submission by counsel for the Plaintiff who was seeking judgment on the reduced amount based on a restitutionary basis as it had not been pleaded at that stage.

42.  The Judge was also not impressed by the fact that in paragraph 7 of the 4^th affirmation of Mr Lam he had accepted the HK$232,700 "consisted of some fees and costs that may violate sections of the Money Lenders Ordinance".

43.  He further noted that the HK$232,000 odd was 18.36% of the Reduced Amount and therefore charging 42% on $1.5 million was equivalent to charging 49.71% on the Reduced Amount.

44.  At paragraph 28 and 29 of his judgement, DHCJ Kwok SC observed that:

“28. To start with, the document, quoted in full in §13 above was no more than “a certificate of attendance”, certifying that “CHOI CHAU CHUNG attended the clinic today”. The person attending the clinic was not identified by any identifying document. The doctor did not claim to know Choi Chau Chung personally.

29. The document seemed no more than a record of what the person attending the clinic told the doctor. It did not say the doctor conducted any test or examination on the mental capacity of the person attending. It merely stated the doctor’s “impression”, not the doctor’s medical findings. Mr Mickey T B Yip said the doctor was not a psychiatrist.”

45.  The learned Deputy Judge further queried whether any person with full mental capacity would volunteer the document as proof of mental capacity, therefore, the document could be said to raise more question than it answered.

46.  In conclusion, the learned Judge stated that having regard to medical evidence adduced by Mr Choi, in particular one Dr CK Wong (“Dr Wong”) he considered that the question whether there was lack of mental capacity on Mr Choi’s part "and the question whether any lack of mental capacity on the defendant’s part was apparent to the plaintiff’s officer is a matter for trial.” He did not accept that the Plaintiff’s officers allegation as to the appearance and behaviour of the Defendant should be taken at face value but should be tested by cross examination at trial. As is explained below, there was no evidence led at trial for the Plaintiff as it did not appear at the trial of this Action.

47.  I finally should mention a number of case management matters which may be relevant to these proceedings:

(1) on 23^rd February 2017: Master Ho granted an unless order that by 4pm on 16^th March 2017, the Plaintiff do file and serve its reply and defence to counterclaim, failing which the Plaintiff would be debarred from filing it and Mr Choi would be at liberty to apply for judgement to be entered on the counterclaim with costs.

(2) on 5^th April 2017: Master Ho by consent granted an unless order that unless by 4pm on 15^th May 2017, the Plaintiff exchange their witness statements with Mr Choi, the Plaintiff be debarred from adducing witness evidence at trial and Mr Choi shall forthwith serve their witness statements.

(3) On 7^th January 2019: Master Kot made some case management directions in particular that leave be granted to the parties to adduce one expert report in the field of psychiatry. The experts shall give an expert opinion on the mental capacity of Mr Choi at the Relevant Time and that there should be a meeting between the experts after a joint meeting to be had.

(4) On 27^th August 2019: Master Ho granted an order that the Plaintiff must by 6^th of September 2019 amend its statement of claim if so advised.

(5) Leave was then granted by Master Hui to set the case down for trial with a six day estimate, on 26^th August 2020.

(6) I note that on 22^nd October 2020, the court granted leave to the Plaintiff’s then solicitors for leave to cease acting, and since then the Plaintiff has had no solicitors on record.

(7) On 9^th February 2021: the matter came before the Hon. Madam Justice Marlene Ng for the pre-trial review. In the absence of the Plaintiff, she ordered pursuant to O.25 r.1c of the Rules of the High Court that the witness statement shall stand as evidence in chief as to the facts in this action, and that subject to the direction of the trial judge, the Plaintiff's doctors opinion i.e Dr Wong as well as his opinion contained in the joint expert report be adduced at trial without calling him; and subject to the directions of the trial judge and the plaintiff appearing at trial to defend Mr Choi’s counterclaim, the expert report of Dr Wun Tong Law (“Dr Law”) dated 4^th of March 2019 and his opinion are set on the joint expert report (“Joint Report”) also be adduced at trial without calling him.

48.  Up to this day, the Plaintiff has not appeared by lawyers nor through its directors.

49.  I should mention one final matter which is arguably of historical relevance and although strictly speaking it does not concern the present proceedings, nor the issues which call for substantive determination before me, I understand Mr Choi to wish to rely on it for the purpose of costs.

50.  On 25^th September 2020, Mr Choi sought and obtained an injunction before the Hon. Mr Justice Wilson Chan to restrain the Plaintiff from causing or permitting threats to, intimidation, harassment, molesting or disturbance of Mr Choi and/or Mr Choi’s witnesses and all their respective families”.  I further note that the costs of and occasioned by this application was to Mr Choi.

When a mentally incapacitated person enters into a transaction what does the counter party need to know?

51.  As noted by the learned authors of Chitty on Contracts (33^rd Ed.) at paragraphs 9-075 to 9-094 the precise legal position appears to be somewhat unclear.  For reasons which are self-explanatory and set out below, even if there was a meaningful distinction which could be said to exist by reason of the different wordings used as the applicable test as set out in some of the authorities, these would not make any difference to the outcome of the case before me and perhaps it could be said that it would only be in a rare case where the so called differences would be of any significance.

52.  The modern position was first fairly clearly set out in the decision of Pollock C.B in Molton v Camroux (1848) 2 Ex 487 where he stated that “unsoundness of mind would now be a good defence...if it could be shewn that the defendant was not of capacity to contract and the plaintiff knew it”. This perhaps suggests that actual knowledge was required.

53.  In Imperial Loan v Stone [1892] 1 Q.B 599 Lord Esher held that it must be proved that “the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about”.

54.  In Hart v O’Connor [1985] AC 1000, the Privy Council rejected the approach of the New Zealand Court of Appeal from which it allowed the appeal, as it considered their approach to be to some extent not sufficiently principled. Lord Brightman when delivering the advice of the Privy Council held that “the validity of a contract entered into by a lunatic who is ostensibly sane is to be judged by the same standard as a contract by a person of sound mind, and is not voidable..” (my emphasis).

55.  The issue was then considered albeit on an obiter basis by the UK Supreme Court in Dunhill v Burgin [2014] UKSC 18.  Prior to that decision, the orthodox view as it was understood in England and which is reflected in the leading textbooks was that one could only avoid a contract if the counterparty ‘knew’ of that incapacity.

56.  Lady Hale asked “can matters be re-opened long after the event or does the normal rule of English law apply, which is that a contract made by a person who lacks capacity is valid unless the other party to the contract knew or ought to have known that she lacked capacity in which case it is voidable (the rule in Imperial Loan)?”.

57.  It can be seen at once that it is not entirely clear why her Ladyship considered that the rule in Imperial Loan encapsualted the ‘ought to have known’ limb.

58.  Further at paragraph 25 of her judgment, her Ladyship noted that in Imperial Loan, the Court of Appeal held that a contract could be avoided by such a person “provided that the other party to the contract knew (or, it is now generally accepted, ought to have known) of his incapacity”. It is not entirely apparent whether this ‘acceptance’ which is being referred to emanated from the way counsel had argued the case before the Supreme Court or otherwise. I note that DHCJ Saunders had cited the decision of the UK Supreme Court as being authority for the ‘extension’ of the ‘ought to have known limb’ although it appears this was done in the absence of argument (Lam San Keung v Beauti-Rich Intl Enterprise, unrep. Judgment dated 29/9/2017).

59.  Her Ladyship then noted that the rule in Imperial Loan was applied by the Judicial Committee of the Privy Council in Hart v O’Connor and held that “a contract made by a person who was ostensibly sane could not be set aside simply because it was unfair.”.

60.  The learned authors of Chitty at 9-079 note that this ‘extension’ would appear to find very little direct support in the English authorities and that introducing ‘constructive knowledge’ (the authors expression) into the mix significantly complicates matters.

61.  The learned authors note that some of the earlier authorities may stand for the proposition that it would be sufficient to avoid the contract to show that mental incapacity was apparent.

62.  In Molton v Camroux (supra) it was first described in the Court of Exchequer in this way “when a person apparently of sound mind and not known to be otherwise, enters into a contract”.  Later in the Court of Exchequer Chamber it was then put as “whether the mere fact of unsoundness of mind, which was not apparent, is sufficient to vacate a fair contract executed..” (my emphasis).

63.  Lord Brightman having referred to the earlier authorities including Molton and Imperial held that “it seems to their Lordships quite illogical to suppose that the courts of common law would have held that a person of unsound mind, whose affliction was not apparent, was nevertheless free of his own bargain if a contracutal imbalance could be demonstrated..” (at 1024E) (my emphasis).

64.  The reference to the affliction “not being apparent” or as later put in the judgment “person ostensibly sane” support the proposition that even if the counterparty to the transaction did not know of the lack of capacity it would be sufficient if this were ‘apparent’ or to put it another way “ostensible” to him.

65.  The learned editors of Chitty summarise the position as follows in 9-088 “there is good support in the authorities for the proposition that the general rule to which a contract may be avoided for mental incapacity only where the other party knew of a person’s mental incapacity is restricted to the situation where that incapacity is not apparent”.  It further stated that suspicion rather than actual knowledge would be enough for this purpose.

66.  As I have not had the benefit of submissions from both sides in this case, I would hesitate to come a firm view especially as it is not necessary on the facts of the present case.  However, I would venture to suggest that the traditional position as it was set out in Imperial and Hart is in fact perhaps not that different from that as sumamrised by Lady Hale in Dunhill v Burgin.

67.  The traditional position allowed a party to avoid the contract, if either he was ‘ostensibly’ or ‘apparently” mentally incapacitated even if it could not necessarily be shown that the counterparty had such knowledge. This is a pragmatic approach, because actual knowledge is usually hard to prove and often only that party itself would know what it knew and what it did not. Of course, where the incapacity was not apparent or the person was not ostensibly incapacitated, the contract could still be avoided if one could show actual knowledge.

68.  I do not consider that in practice there would often be a different result irrespective of which approach is adopted for this reason, assuming of course that the Supreme Court in Burgin was in fact adopting a new test. It would appear from her Ladyship’s judgment that she was in fact applying the same test as set out in the earlier cases of Imperial and O’Connor.  The ‘ought to have known’ limb could be treated as a short form for saying a party ought to have known because it was apparent or ostensible.

69.  If a person did not know of the other’s incapacity and this incapacity was not ostensible nor apparent, when would it be fair to hold that it “ought to have known” notwithstanding it was not apparent nor ostensible? If the enquiry of a party’s constructive knowledge were to include matters it could only find out after an extensive investigation then it would in my view be arguably taking the matter too far.

70.  All in all, while I consider that there probably is not much of a practical difference between the two approaches in practice (if indeed it is a different position at all), in so far as it would be necessary I would adopt the traditional position as encapsulated in Hart v O’Connor and Imperial.

Issues Narrowed and Evidence

71.  I now deal with the evidence. I should point out that for the purpose of considering the same and arriving at findings of facts I have not taken into account the events leading to the injunction being granted and referred to in the paragraph above as I do not consider that by itself even if the underlying facts which led to that injunction were proved (and this was not a trial of those issues) these would not per se assist the Court in drawing inferences on the key factual issues in the present case.

72.  For reasons which I further set out below notwithstanding the various alternatives advanced by Mr Choi in his pleadings, it is not necessary to consider other than two of these, namely:

(1) The mental incapacity defence.

(2) The excessive interest defence by which I mean the defence based on the fact that the real interest charged was in excess of the 60% allowed under S.24 of the MLO.

73.  I note that by reason of the Plaintiff’s non-participation and by the fact that it is not calling its witnesses that their testimony cannot be tested by cross-examination. This is important in so far as proof of the Plaintiff’s knowledge of Mr Choi’s incapacity is concerned or that it could not be said it ought to have known.  This also goes to the issue of whether Mr Choi was ‘ostensibly sane’ at the Relevant Time.

74.  In the event only the Son and a tenant of one of Mr Choi’s property, one Madam Poon gave evidence. A lot of what was contained in the Son’s witness statements contained a commentary of the Plaintiff’s case and what he perceived to be weaknesses or contradictions of the Plaintiff’s case.  This is strictly speaking not admissible.  The evidence of both witnesses however is relevant to the demeanor and conduct of Mr Choi at the Relevant Time which is helpful to trying to assess whether at the Relevant Time he would have appeared as ‘ostensibly sane’ and whether the Plaintiff would have known or should have known about his incapacity.

75.  I have however, had regard to the Plaintiff’s evidence so far as it seeks to at least explain the context of some of the documents which are admissible and which are before me.

76.  The first relevant document which is relevant to the issue of mental capacity is the existence of the Dr Hu Certificate which I have referred to above. It would appear that based on what the Plaintiff’s manager was saying that this was produced by reason of his initiative and that he had asked the clerk at KBC how he could get more ‘legal protection’ given that the borrower was elderly and it was then suggested by the clerk that a medical certificate should be obtained before the signing of the agreement to prove that he had the capacity to sign the agreement. It was also contended by Mr Lam that it was the clerk who recommended Dr Hu to handle the certificate.

77.  Mr Lam also stated that the Clerk suggested him to video Mr Choi after signing the agreement as evidence by which he presumably meant evidence of Mr Choi’s mental capacity.  I will further explain below that there is in fact no such video. There is however one photo which was produced amongst the documents.

78.  Mr Lam suggested that the medical certificate was handed over to him at around 2 to 3:00 pm on the 20^th May 2015 when he met with Mr Choi together with the Lady Friend.  Mr Lam explained that the photo which he has produced was taken because he had asked Mr Choi if he could make a video recording to prove he had the capacity to understand and sign legal documents to which he did not object.  Mr Lam claims that it was only afterwards he had found out he had mistakenly switched on the photo function and hence there is now a photo but no video.

79.  In so far as the Plaintiff’s knowledge of Mr Choi’s mental capacity is concerned, Mr Lam says very little about it, save that at paragraph 2 of his statement he did not know that Mr Choi was suffering from a mental illness and that if it had known that Mr Choi was suffering from a mental illness or did not have the mental capacity to sign the Loan Agreement, the Plaintiff would not have granted the said Loan.

80.  Mr Lam nor the clerk gave evidence at trial and therefore could not be cross examined on those matters. Very little reliance, if any can be placed on their bare allegations in the absence of live or documentary evidence.

81.  In any event it can be seen from the rather limited references to these matters in their witness statements that the matters highlighted in the expert reports have not been addressed including those which touch upon the appearance and the outward behaviour of Mr Choi at the Relevant Time.

82.  As explained above, in addition to the Son, one Madam Poon was called as a witness. Her evidence was quite short and she essentially explained that her son was the tenant of the ground floor of the property of Mr Choi where a shop is being operated and had known him for many years usually for the purpose of collecting rent. She recalled in early May 2015 Mr Choi came to the Shop and noted "I saw that his demeanour was weird, in an excited state, talked a lot but in confusion and unclear, I did not understand what he said and (he) also played kung fu in front of me and the shop attendant. I felt that the defendant’s mental state that time was not good and there was something wrong”.

83.  As she was unable to fully read her own witness statement in Chinese, it was re-read to her and upon hearing it, she made a minor correction which is of no significance. Given she was acquainted with Mr Choi for many years, I asked her a series of questions relating to her perception of Mr Choi’s behavior over the last few years. Her answers were straightforward and she was careful in her answers, and not in any way seeking to ‘overstate’ how third parties would have perceived Mr Choi to be at the time.  I consider her to be an honest and reliable witness. She has no obvious axe to grind. Her evidence is consistent with the expert medical evidence which I set out in more detail below.

84.  The Son also gave evidence in these proceedings. He is the youngest son of Mr Choi and he explains that his father’s condition, both mental and physical deteriorated quite significantly after the passing of his late mother.  He is obviously not in a position to deal with most of the matters which arose on or around the time of the execution of the Loan Agreement.

85.  The fact is that there are no witnesses in this trial who are able to shed much light on the critical factual issues relating to how Mr Choi would have appeared to the Plaintiff at that particular meeting and whether he would have appeared to be ‘ostensibly sane’ or whether the Plaintiff should have known about his incapacity.

86.  What the Court therefore has to consider is the contemporaneous documents as well as the contemporaneous medical records (i.e. those closest to the Relevant Time) which in turn informs the expert opinions of the medical doctors i.e. the psychiatrists who have given evidence in this case and produced the Joint Report.

87.  Happily their views are largely in agreement and it is perhaps for this reason that at the earlier case management stage it was directed that there was no need for them to attend for cross-examination.

88.  To a limited extent it could be said that the expert’s views was influenced by information given by non professionals such as the Son’s evidence. Given the long history of illness of Mr Choi and his regular consultations with doctors there is more than sufficient evidence for the court to draw reliable inferences as to what is likely to have happened at the Relevant Time. These include appropriate inferences on both the state of mental capacity of Mr Choi at the Relevant Time and also whether this was something which would have been apparent to third parties such as the Plaintiff.

89.  The Son’s evidence consists of a number of parts. In part of his evidence, he deals with the various visits to doctors and hospitals and this is corroborated by the various medical records which were contemporaneous and considered by both medical experts.  I therefore do not see the need to deal with it here as this is something which is already sufficiently addressed in the medical evidence.

90.  I think primarily there are two areas which he deals with which are relevant: first is how he got to learn about the Loan and second, the behaviour of his father at the material times because this would have an impact on findings of fact in terms of how third parties including the Plaintiff would have noticed the father’s condition.

91.  The Son says that at the end of May or beginning of June 2015 when he visited his father at this hospital and he was receiving his treatment, he received a phone call from a woman who did not disclose her identity but simply said that Mr Choi had borrowed HK$1.5 million from a finance company. When making the query with his father, Mr Choi simply said he promised to help a friend called Ah Chen to borrow HK$700,000 but he could not remember any details, save that he went to a law firm to sign certain documents. As the Son assumed that if that had happened there would be a need to reflect this in some of the land registry documents, he instructed lawyers and found out about the same.

92.  When asked about the 2^nd mortgage, the father said he could not remember what documents he had signed and all he remembers is therefore signing a series of documents but that there should be no mortgage documents and if he had known that he needed to mortgage a property he would not have done so.

93.  Mr Choi also stated he had no idea as to why Dr Hu would have produced a certificate of attendance and that as far as he knew his father had never seen this doctor before and that Mr Choi never had the need to receive specialist cardiac advice or treatment which is odd given that Dr Hu is apparently a cardiologist.

94.  He further explains that he is not aware of the identity of the Lady Friend (ie Miss Chan) nor did his father have any recollection of her either. The only thing it seems the father remembered is that the Lady Friend went to his home and took him to a nearby restaurant to meet a group of "very fierce, very rough people and then went to the bank to withdraw money".  His father did not know these people.

95.  In so far as the whereabouts of the Reduced Amount is concerned, the Son says that his father said that every time it was the Lady Friend who approached him and so he had lost the means to contact her.

96.  He further explained that he had tried to obtain the CCTV records of who accompanied Mr Choi to withdraw the HK$757,300 on the day following its deposit to his account but was unable to do so as the bank informed him that they have not kept the relevant CCTV records.

97.  I will deal with the findings of facts below but I will indicate at this juncture that although I am obviously aware that the Son has a vested interest in this litigation in the sense that he potentially has  an economic benefit through his Father, I consider his evidence to be consistent with the contemporaneous evidence and medical evidence and consider him to have done his best to reflect fairly on what his father’s condition was and behavior was at the time.

98.  I will also mention that in Dr Wong’s Report which I deal with below, he had set out some matters as relayed to him by family members including the Son. The Son confirmed these in the course of the Court asking him to elaborate on his father’s demeanour and behavior when dealing with non family members.

Medical evidence

99.  I now deal with the question of expert medical evidence.

100.  As I have noted above, at the pre-trial review the Hon. Madam Justice Marlene Ng directed that subject to my direction the expert reports of Dr Wong should be adduced without calling him.  Dr Law’s views, both are set out in his own report and in the joint report however would only be adduced at the trial without calling him if the Plaintiff appeared at trial.

101.  I asked Mr Harris S.C. whether he agreed that given that the claim and the counterclaim were ultimately mirror images of one another in terms of the issues to be resolved, and also because in reality there was very little (subject to one issue which I deal with below) which separated the two experts, that I should take Dr Law’s opinion into consideration.

102.  The joint psychiatric report was produced pursuant to directions of the Court on the 7^th January 2019 and referred to the respective individual psychiatric reports on Mr Choi by both Dr Wong’s report dated 26^th of February 2016 (“Dr Wong Report”) and Dr Law 's report dated 4^th of March 2019 (“Dr Law Report”).  The two doctors conducted a joint meeting which lasted 1.5 hours.

103.  It is important for this purpose to note that at the joint meeting the two doctors conferred by first exchanging documents that they had been provided which included medical records from the United Christian Hospital for the period of January 2012 to 6^th of February 2015, the medical notes of one Dr Samuel Kwong who is a specialist in neurology for the period 24^th of April 2015 to 26^th of May 2015, as well as the Dr Hu Certificate which has been referred to at some length above.

104.  In addition there was also a medical report prepared by Dr Samuel Kwong dated the 3^rd of July 2015.  I will not refer to all the medical reports produced but I will highlight the more important parts of those reports which assist in determining what the position was at the Relevant Time.

105.  Both doctors recognise that even though they did not have the opportunity of examining Mr Choi on 20^th May 2015 having studied the documents provided to them they were “confident about the professional opinions that we have formulated in our respective individual report and with particular reference to the core issues of the case i.e.  the mental condition and mental capacity of Mr Choi on 20^th of May 2015”. Both doctors consider and make the diagnosis of dementia although Dr Law had opined that the dementia was of the vascular sub type in the Joint Report.

106.  Dr Wong also made the diagnosis that Mr Choi suffered from Bipolar l disorder whereas Dr Law made the diagnosis of delirium. Both doctors concurred that he presented manic features.

107.  Both doctors concurred that the difference in the diagnostic opinions about the causation of Mr Choi’s manic features has no practical significance for the purpose of this case.  The crucial point and they concur fully is that on 20^th May 2015, Mr Choi would have exhibited manic features. In terms of Mr Choi’s mental capacity on 20^th of May 2015, both concur that he did not possess the mental capacity to sign any of the legal documents.

108.  One sub-issue which both doctors have considered concerns in effect the weight to be given to Dr Hu’s Certificate. Both recognise that the expertise most relevant to mental capacity would rest in specialist psychiatrists, although as Dr Law notes every medical practitioner should be able to assess the specific capacity so far as he or she understands the criteria to determine whether one possesses the capacity or not although he recognises that most doctors will not usually have the experience or expertise in that area and therefore psychiatrists would normally be the most appropriate ones to assess mental capacity.

109.  Both doctors recognise that by reference to what is stated in Dr Hu’s Certificate. It would not appear from it that he conducted an adequate assessment. It seems to me to be fair to say Dr Hu did not purport to do so.  Both doctors also concur that it does not appear that Dr Hu conducted such test because it does not appear from either his certificate or his reply to the lawyers’ enquiry on 30^th of December that he had conducted such assessment or else he would've said so. Dr Hu in a handwritten reply in the same solicitors letter explained that he “only saw this individual for the first and only time. The certificate is my only record.”

110.  I now turn to the issue which is of relevance but on which there's no full consensus: i.e Would Mr Choi appear to be mentally incapacitated to people without knowledge of his mental illness?  Dr Wong 's view was that “patients suffering from manic episode are clearly mentally deranged even to people without knowledge of mental illness because of the following symptoms which are clearly observable first their mood is "manic” i.e. very elated or high and also very irritable.  Second they talk incessantly (because of pressure of speech) but their speech is incoherent (because the flight of ideas). Third they show psychotic symptoms including grandiose delusion and auditory hallucination therefore I have no doubt that on 20^th of May when Mr Choi borrowed money from the money lender he should've been clearly mentally abnormal to the people involved in this case.”

111.  Dr Laws view was more guarded. He simply stated that in the Joint Report that "for a person without knowledge of mental disorders and did not know Mr Choi in the past, he or she might not be able to know that Mr Choi was mentally unwell”.  I read this as suggesting that it would be possible for third parties (without medical background or whom were previously acquainted with Mr Choi) not to know the true position.

112.  The Joint Report concludes "we concur almost fully in our opinions specifically on the most crucial issue of this case i.e that Mr Choi had no mental capacity to sign any legal documents on 20^th of May 2015. Our only slight disagreement is whether a person without medical training was able to notice Mr Choi as being mentally abnormal on 20^th of May 2015”. It is right to note of course that this issue considered by both Doctors was almost entirely based on the medical records and involved some element of ‘ex post facto’ analysis. They were not able to, for the purpose of their opinion, consider facts as found by me in particular those which depend on the assessment of credibility of both the Son and Madam Poon who were able to cast light on Mr Choi’s conduct and behavior at the Relevant Time.

113.  I now return to some elements of Dr Wong's report. It's worth mentioning that Dr Wong had the advantage of examining Mr Choi on 18^th of January 2016 which was 6 to 7 months after the Relevant Time, whereas Dr Law only examined him some time later on 18^th of February 2019. Of course it can be seen that to a large extent both doctors relied on contemporaneous medical records which either pre-date 20^th of May 2015 or post-dated it but only by a short period of time.

114.  I should mention here that as set out above Mr Choi had previously consulted with a private neurologist, one Dr Samuel Kwong for his post-herpetic neuralgia. Dr Kwong wrote in his medical report dated 3^rd of July 2015 that “recently Mr Choi was seen by me on 24/4/2015, 28/4/2015, 4/5/2015,1 1/5/2015, 18/5/2015 and 26/5/2015.  He was suffering from excruciating post-herpetic neuralgia and mania with mood congruent psychotic symptoms adjustment disorder. He had confusion and auditory hallucination”.

115.  It can thus be seen from the above that in the month preceding the Relevant Time, Dr Kwong had seen Mr Choi no less than five times. This is obviously highly relevant because it predates the Relevant Time and it could not be suggested without a stretch of the imagination that these were other than genuine consultations rather than an ex post facto exercise of someone trying to fake a case of lack of mental capacity.

116.  I have looked at the certificate prepared by Dr Kwong and note that he goes on to say "his mental state was not fit to make sensible decisions concerning his personal financial matters now he is still in hospital for psychiatric treatment”.

117.  In terms of his previous medical history which is relevant, Dr Wong further noted that in the report of Dr Chan of the Department of psychiatry of the United Christian Hospital in her report dated 26^th of November 2015, that Mr Choi was known to the psychiatric psychogeriatric outpatient clinic of the United Christian hospital since 30^th of March 2012 and that “he presented with temper outburst and memory problem since January 2012 in reaction to conflicts with son. He was diagnosed with adjustment disorder and was put on antidepressants since 11^th of July 2012. His memory gradually deteriorated. He was diagnosed with dementia and was started on cognitive enhances since 27 of November 2013”.

118.  As recorded by Dr Wong, only on the day prior to the Relevant Time his youngest daughter returned from Taiwan to pay respect to Mr Choi’s late wife when Mr Choi talked non-stop and his mood was very elated. It was in those circumstances he was taken to the accident and emergency department of the United Christian Hospital and treated as a psychiatric emergency case. He was in fact admitted to the psychiatric ward. In her psychiatric report dated 26^th November 2015 Dr Chan noted “Mr Choi remain mentally stable with regular psychiatric follow-up on medication until May 2015 when he presented with manic features.  He presented with elated mood, talkativeness, grandiose ideas of knowing the Chief Executive of Hong Kong and President of China and distributed banknotes to neighbours. He also had auditory hallucination. He was admitted to the psychiatric ward at the United Christian hospital since 29^th of May 2015 and subsequently transferred to the Kowloon Hospital since 4^th of June 2015 in view of his unstable emotion, uncooperativeness and violent propensity.  He was discharged from Kowloon Hospital on 6^th of July 2015. He was diagnosed with bipolar affective disorder, current episode manic with psychotic symptoms”.

119.  This is consistent with Dr Chong Kin Yee’s psychiatric report dated 23^rd of July 2015 who noted that Mr Choi was admitted to the Psychiatric ward on 29^th of May for abnormal mental state for two weeks and that “his mood was elated with grandiose delusions and overspending. He also heard voices of his deceased mother and wife saying he was a genius. He was talkative and his speech was irrelevant…”.

120.  By 18 January 2016, when a MMSE examination was conducted Mr Choi scored 13 out of 30 which put him in the "range of moderate dementia".  Dr Wong 's opinion was that he did not have any doubt that the impairment due to either dementia or Bipolar I disorder alone would have rendered him mentally incapacitated and making any rational judgement or decision.  Therefore his rational thinking ability would be seriously and severely impaired. His executive functioning was severely impaired and that he was unable to plan, organise or execute plans or actions and he would be unable to remember and keep track of what he had, said or thought about.

121.  Both Doctors concur that as at the Relevant Time, Mr Choi did not have the mental capacity to understand the legal documents he signed. The next question then is (1) Did the Plaintiff know (2) could it be said that it should have known or (3) was Mr Choi ‘ostensibly sane’.

Was Mr Choi ‘ostensibly sane’/Did P know or ought to have known?

122.  In the absence of any contemporaneous and direct evidence on a party’s state of knowledge, the Court can only draw inferences on both what that party itself says and also the other undisputed or undisputable facts.

123.  I am able to draw various inferences which I considered to be appropriate.

124.  Both the Son and Madam Poon gave viva voce evidence. The son confirmed the matters which had been explained to Dr Wong in his report about oddities in Mr Choi’s behavior at around the Relevant Time. He also referred to a number of incidents which tend to suggest that Mr Choi was behaving in a rather strange and erratic way even when interacting with non-family members. While he would go swimming in the morning with his friends, on one occasion he simply swam with his underwear rather than his swimming trunks.

125.  The Son confirmed that the defendant’s mood remained stable until May 2015 when he became high in mood.  He slept very little and did not appear tired or sleepy throughout the day and night. He went out often and actually ran and practised kung fu in the streets (Madam Poon witnessed one such occasion).  “He became disinhibited.  He talked to strangers.  He gave money to strangers he said he was a genius and was endowed with great power.  He became incoherent in his speech.  He said he heard the voice of his deceased mother and his deceased wife.” In particular during one consultation with Dr Samuel Kwong, he gave him red pockets and half a dozen of underpants as presents.

126.  For the reasons set out below and bearing in mind my observations set out above I find on the evidence before me (looking at both factual and expert evidence) and on a balance of probabilities that Mr Choi was not ostensibly sane and the Plaintiff both knew and in any event in that sense ought to have known of Mr Choi’s incapacity.

(1) It should be noted that the Plaintiff itself wanted almost from the ‘get go’ to obtain some sort of medical certificate to ‘strengthen’ its own position.  It seems to me that this is an indicator that the Plaintiff must have considered there was a real question at the very least about Mr Choi’s mental capacity.  His age at the Relevant Time was not such that it would automatically be thought there would be an issue of mental capacity by reason of that fact alone.

(2) Again on the Plaintiff’s own case it had wanted to take a video of Mr Choi although it is alleged that because of some malfunction or pressing of the wrong button only a photo was taken again. I do not accept that this is a true explanation. In any event, this raises more questions than answers because this together with the requirement for a medical certificate highlights the fact that the Plaintiff would have been aware that there was something wrong with the capacity of the mind of the defendant.

(3) I further note that after the Plaintiff was unable to obtain summary judgement it often dragged its feet which led to the making of various unless orders and ultimately of course it ceased having legal representation and did not participate in these proceedings altogether.

(4) No witnesses were called for the Plaintiff and I am thus unable to take the Plaintiff’s explanations at face value as these are untested by cross examination. As against that both Madam Poon and the Son gave evidence which I accepted the very bizarre manner in which Mr Choi was acting at the Relevant Time.

(5) The consensus of the Doctors was that Mr Choi did not have mental capacity at the Relevant Time It is also clear from the above that having regard to the well documented medical history of Mr Choi and that he had displayed many psychiatric disorder the symptoms of which would have been apparent to third parties.

(6) People with mental capacity would not have behaved like Mr Choi. I also note having regard to the extremely high rates of effective interest charged, given the fact he had properties to offer as security it is also somewhat inherently unlikely for any person to have agreed enter into this sort of arrangement but for some incapacity.

(7) I have also borne in mind that Dr Law was not able to conclude with certainty one way or the other as to whether or not outsiders with no medical background or prior knowledge of Mr Choi would be able to notice that he was under some mentally incapacity. The way Dr Law carefully put it is simply that such persons “might not be able to know that Mr Choi was mentally unwell”.  However, this must depend on the actual circumstances of the case, whether that person might or might not know.

(8) In a case where from the ‘get go’ the money lender was aware that there was an issue and therefore requested some form of medical certificate and tried to video the borrower and was also aware of the very exorbitant terms of the loan, these are factors which taken together with the other medical symptoms and the contemporaneous evidence given by the witnesses of fact point to the fact Mr Choi was not ostensibly sane and that the Plaintiff knew and ought to have known of the same.

Restitutionary Claim available even if Mr Choi had no mental capacity and the Plaintiff knew?

127.  No doubt sensing its difficulty on its primary case the Plaintiff had after its failed O.14 application  amended its statement of claim to plead as an alternative a restitutionary claim so that even if the loan was unenforceable by reason of incapacity,  the fact remained that it drew a cash cheque of HK$500,000 in favour of Mr Choi which was cashed (by whom it is impossible to say) and another cheque of HK$700,000 odd which was paid into Mr Choi’s bank account and promptly paid out in cash (and again to whom it is against impossible to say).

128.  The starting point of the analysis must be paragraph 5.04 of Goff and Jones on unjust enrichment where the learned authors comment that "first though something must be said about claims for the face value of money that is not paid to a defendant but is paid to a third-party at the defendant’s request. Cases of this kind can be resolved on the basis that the defendant who requests money to be paid to another party is enriched to the same extent as he would've been if he had received the money himself. For example in Goss and Chilcott the Privy Council held that the borrowers of money who arrange for the funds to be paid to third-party were themselves enriched at the expense of the original lender. However, this case may be contrasted with an Australian case namely Ford and Perpetual Trustees Victoria Ltd [2009] NSWCA 186 where the mental incompetent defendant was induced by his son to take out a mortgage loan to obtain money most of which was paid to the son’s business. The claimant bank could not enforce the mortgage and its claim in unjust enrichment largely failed because the defendant was "a manipulated intermediary with no understanding of any aspect of the overall transaction" who had in substance "received no benefit from the loan". In effect the case was one of ministerial receipt and it seems that the key question in such cases is whether the defendant freely acted on his own behalf or as the third parties agent when he caused the money to be paid to the third-party”.

129.  It is useful to look at the judgement of the New South Wales Court of Appeal dealing with unjust enrichment on this matter, as the facts in that case are in many ways comparable to those before me, except that the beneficiary here was not the ‘recipient’s son but the Lady Friend and perhaps others assisting her.

130.  The Court of Appeal had this to say.

“[121] The relevant enquiry as to the availability of the order for payment or repayment does not cease with the identification of the relevant qualifying consideration, such as mistake. The enquiry is as to the injustice of the retention of any money or benefit. This lies at the root of the claim and of any defence such as change of position: Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 at 560; [1992] 4 All ER 512 at 517 ; [1988] UKHL 12 (Lipkin Gorman) per Lord Templeman and AC 578 ; All ER 532 per Lord Goff. The High Court has recognised this element of the injustice or otherwise of retention in the operation of defences: David Securitiesat CLR 385–6 ; ALR 80 and Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673 ; 78 ALR 157 at 161–2; [1988] HCA 17 (Westpac Banking). Lord Goff, similarly, in Lipkin Gorman examined the question of the injustice or otherwise of retention in the context of defences. …

[123] The question of request, payment, receipt and benefit should be viewed as matters of substance and not form or legal technicality: Westpac Bankingat CLR 673–4 ; ALR 161–2

131.  The New South Wales court of appeal then cited with approval  National Commercial Banking Corporation of Australia Ltd and Betty (1986) 160 CLR 251 where  Chief Justice Gibbs had this to say:

“[T]he emphasis on justice and equity in both old and modern authority on this subject supports the view that the action will not lie unless the defendant in justice and equity ought to pay the money to the plaintiff

…Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of the fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part.” (my emphasis)

132.  In the case before it, the court therefore concluded that the ‘receiving party’ was a “manipulated intermediary with no understanding of any aspect of the overall transaction. In substance, he received no benefit from the loan… Looking at the matter as one of substance, [he] was the innocent, mentally incapable dupe of his son. …in no real or substantive sense did he receive and retain benefits such that it would be unjust for him not to repay the loan..”,

133.  It seems to me that these observations and considerations apply with full force here where the Plaintiff was aware that Mr Choi was in fact not ostensibly sane and would have known and be alive to the fact that the so called Loan was not for the benefit of Mr Choi but brought about due the manipulation of others whether that of his Lady Friend or others or both in conjunction, it is impossible to tell and not necessary to make any findings for present purpose.

134.  As I put it to Mr Harris S.C. it seems to me there is a difference between a case where a loan is unenforceable due to incapacity but the proceeds can be demonstrated to have been used to reduce legitimate liabilities of the mentally incapacitated person or otherwise were used to buy assets for him, and cases like the present where his account was no more than a conduit and he was not aware of the money either going in or out due to his incapacity, and therefore it could not be suggested in any real sense that he was unjustly enriched. If anyone was unjustly enriched it would have been those people who put Mr Choi up to it and took the benefit of those monies.

135.  It may be that there will be cases where the answer on whether or not the mentally incapacitated person has been ‘unjustly enriched’ will be more complicated as there can be nuances. On the facts of the present case I consider this exercise to be straightforward. The Court must look at substance and not technicality to ascertain whether there has been unjust enrichment or otherwise.

136.  For these reasons I consider that the Plaintiff’s alternative case based on restitution fails.

MLO Defence interest in excess of 60%

137.  In light of my conclusion above that the Plaintiff is unable to rely on the Loan Agreement and that its restitutionary claim fails as there has been no unjust enrichment, on that basis alone Mr Choi’s counterclaim would be successful and I would therefore grant the declarations he seeks.

138.  Since I have also been addressed on this issue and it is relatively straightforward I will also deal with it swiftly.

139.  Mr Choi argues that the Loan Agreement is in breach of s.24 of MLO.

Section 24, which prohibits excessive interest rates, provides in subsections (1) and (2) that:

“(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).”

The relevant part of section 2(1) and (2) of MLO provides that:

“(1) In this this Ordinance, unless the context otherwise requires –

effective rate (實際利率), in relation to interest, means the true annual percentage rate of interest calculated in accordance with Schedule 2,”

"(2)  For the purposes of this Ordinance, where by an agreement for the loan of money the interest charged on the loan is not expressed in terms of a rate, any amount paid or payable to the lender under the agreement (other than simple interest charged in accordance with the proviso to section 22) shall be appropriated to principal and interest in the proportion that the total amount of principal bears to the total amount of the interest, and the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2 shall be deemed to be the rate of interest charged on the loan.”

140.  The analysis in this area of the law has been recently re-stated in the Court of Appeal decision in Gain Wealth Global Credit and Investment Ltd and Chan Suk [2020] HKLRD 831 where Kwan VP held that:

“46.  In support of his contention, Mr Ho relied heavily on Skyline Credit Ltd v Leung Hing Chung [2019] HKCFI 169, …... Deputy High Court Judge William Wong, SC held that in calculating the effective rate of interest under sections 2, 24 and 25, the court has to take into account any amount, by whatever name called, in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan, as the definition is cast in the widest possible terms “in order to catch any payments which borrowers were made to pay to money lenders under various names or labels” and the court looks at the substance not the form (at §§120, 124, 125).  Interest is the cost of borrowing, and it includes the sort of charges, costs and expenses described in section 27 (at §126).  ..).”

141.  The question therefore is what is the amount of the principal? As noted by the Court of Appeal, under section 2(1), “principal” in relation to a loan “means the amount actually lent”.  What actually is lent is a question of fact, not a question of law.

142.  The interest rate stated in the present loan agreement is 42% per year but of course as explained above that was fictitious because Mr Choi was in reality only lent the Reduced Amount because various costs were deducted and perhaps more outrageously three months of alleged interest payments were " prepaid” but then never taken into account when the Plaintiff sought to get repayment.

143.  This suggests that in reality whilst the loan was only of 1.267 million odd the interest charge was the 42% per annum on the whole $1.5m together with those extra three months which have been pre-charged and yet unaccounted for.  This adds to another 12.4%, using the Reduced Amount as principal.

144.  If one adds up the various charges and interest including the three months charged yet unaccounted for, the real rate of interest in the present case would be as calculated by Mr Harris as close to 68% and therefore would be in breach of the s.24 of the MLO, and for this reason alone would also be unenforceable.

145.  It is clear on the facts here that Mr Choi was not lent the Loan Amount but at its highest it was the Reduced Amount.

146.  In terms of breakdown it was submitted that if one looks at the interest on a yearly basis, then one is talking about the 42% which were charged on the face of the agreement which would total HK$630,000, and then there were other deductibles including the HK$157,500 being the so-called pre-paid interest for three months although that was not taken into account, as can be seen in the pre action letter seeking one month of interests merely one month after the Relevant Time and ignoring those sums as in fact paid, one can see that the effective non-principal amount sought as a percentage of the principal amount sought would exceed 60% and therefore would be illegal and unenforceable.

147.  I note that in earlier correspondence and before Deputy High Court Judge Kwok S.C. the plaintiff had conceded there were breaches of the MLO although it is not entirely clear which of those sections it conceded breaching.

148.  Therefore, I also find that the defendant has proved its alternative case based on breach of s.24 of the MLO.

Determination and costs

149.  The Claim has already been provisionally struck out, I do not need to make any other orders on it.

150.  I will allow the counterclaim in so far as the declarations which arise by virtue of my findings above and also the consequential orders which flow from these declarations in so far as certain formal documents will now have to be removed from the Land Registry records. Mr Choi’s solicitors are to submit a draft Order for my approval reflecting the above by 5 pm on 10^th May 2021.

151.  I have asked Counsel to file written submissions on costs which I have received and considered. I am told that these have been served on the Plaintiff’s registered office. The Plaintiff did not reply to the same.

152.  It seems to me that both the costs of the Claim and Counterclaim should be considered together as they are mirror images of one another.

153.  I accept the submissions of Mr Choi that is an egregious case not just because of the breach of the MLO and also because the Plaintiff knew and was aware of Mr Choi’s incapacity but also for having dragged its feet in this litigation. This is almost 6 years since the Plaintiff issued its demand against Mr Choi. There were also the many peremptory orders, the ill-considered summary judgment application and ultimately the Plaintiff just ‘gave up’ in prosecuting its claim leaving Mr Choi having to expend costs and efforts (and Court time) in resolving this dispute. I have had regard to the well-known principles as summarised in Hong Kong Civil Procedure 2021 at 62/App/12 which justify the Court ordering a higher basis of costs.  I will not reiterate them here as they are well known. I consider making an order on an indemnity basis to be appropriate here.

154.  I was informed that the Plaintiff did not pay the costs of the Injunction Order granted by Wilson Chan J.  I am also told it apparently no longer has a money lender licence. It has failed to appear after its solicitors ceased to act. In all the circumstances there is at least a very serious doubt about its ability to pay the costs of these proceedings. Although it is unusual, I will accede to the application to have the costs of these proceedings to be taxed on a gross sum basis.

155.  I accept this is relatively unusual if not exceptional but I am aware of such costs of the entire proceedings after trial having been made in the past in appropriate circumstances.  I am satisfied this is one such exceptional case where I consider it to be right and proper.

156.  Mr Choi’s solicitors will be directed to file a gross sum assessment schedule by 12^th May 2021 at 5 p.m. and the Plaintiff will have until 18 May 2021 at 5 p.m. to respond. Mr Choi’s solicitors can then make any reply submissions if so advised by 20^th May 2021 at 5 p.m. (limited to 3 pages) and I will then determine the amount of costs on papers.