ACTUALLY FINANCIAL LTD v. WONG PUI MIU

DCCJ 3317/2020

[2022] HKDC 82

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3317 OF 2020

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JUDGMENT

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THE CLAIM

1.  This is a money lender’s action in which the plaintiff, a registered and licensed money lender under the Money Lenders Ordinance (Cap.163) (“the MLO”), claims against the defendant under a loan agreement and a personal loan agreement both made on 5 September 2014 (“the Loan Agreement” and “the Personal Loan Agreement” respectively), pursuant to which the plaintiff advanced $1,200,000 (“the Loan”) to the defendant at the interest rate of 33.6% per annum.

2.  The defendant had defaulted in his monthly repayment. The plaintiff therefore claims:

(1)  Principal and interest up to 29 June 2015 in the total sum of $1,305,841.66;

(2)  Interest on the principal of $1,200,000 at the rate of 33.6% per annum from 29 June 2015 until full payment; and

(3)  Overdue interest related to the overdue instalments scheduled to be paid on 6 April 2015, 5 May 2015 and 5 June 2015.

THE UNDISPUTED/INDISUPUTABLE FACTS

3.  The following matters are not disputed or indisputable.

4.  The defendant is a person with mental disability due to congenital illness and has been receiving Disability Benefits from the Government. Be that as it may, he was a university graduate major in Education. He also studied in a postgraduate programme in the Chinese University of Hong Kong.

5.  After his graduation, he had worked as a teacher, teacher assistant, library assistant and private tutor. At the material time, he was running his own business as an online retailer of pens. He was also a part-time tutor and a substitute teacher occasionally. In September 2014, his monthly income was about $11,000 to $15,000.

6.  He got married in 2005. His wife was a housewife at the material time.

7.  The defendant was and is the owner of a public estate flat located in Tak Yee House (Block 3), Tak Tin Estate, No.223 Pik Wan Road, Kowloon, Hong Kong (“the Property”). Since the defendant had not paid any premium, the Housing Authority’s consent (“HA consent”) is required to be obtained before any new mortgage is created over the Property.

8.  The defendant’s indebtedness before September 2014 may be summarised as follows:

(1)  He had taken out a “property owner’s loan” in the sum of $150,000 in March 2013 from National Resources Finance Limited (“National Resources”) at the interest rate of 33% per annum. The monthly repayment amount for the first 12 months for this loan was $4,358, which would be reduced to $2,858 from the 13^th month onwards;

(2)  He had taken out another “property owner’s loan” in the sum of $100,000 in May 2014 from National Resources at the interest rate of 30% per annum. The monthly repayment amount for this loan was $5,910;

(3)  HSBC granted the defendant a “Revolving Credit Facility” with a credit limit of $115,000 in 2014, and the monthly repayment amount was $2,970.90.

9.  On 3 September 2014, a Chinese male, representing himself as Mr Wong of HSBC (“Mr Wong”), called the defendant’s mobile phone and told the defendant that he (the defendant) was required to undertake a credit assessment/stress test. In the telephone conversation, Mr Wong asked the defendant whether he had borrowed from National Resources and whether it was a mortgage loan. The defendant, believing that Mr Wong was really from HSBC, disclosed the details of his debts honestly.

10.  Mr Wong informed the defendant that HSBC was entitled to demand immediate repayment of all outstanding debts under the Revolving Credit Facility should the defendant fail in the test and asked the defendant to wait for his call.

11.  Later on the same day, Mr Wong called again, and informed the defendant that he had failed the test. As a result, the defendant was very concerned. Upon the defendant’s enquiry, Mr Wong advised him that he should take out a mortgage loan charged on his property. Mr Wong told the defendant that someone from an accounting firm, which had working relationship with HSBC, would call him on the following day.

12.  Shortly after 11am on the next day (4 September 2014), a Mr Kong (“Mr Kong”) of INC International Accounting Affairs Limited (“INC”) called the defendant and said that he was referred by HSBC to help the defendant clear his debts. After enquiring the defendant’s credit condition, Mr. Kong advised the defendant to borrow $1,200,000 by mortgaging his property. According to Mr. Kong, the arrangement would be as follows:

(1)  the loan would be used to pay off the debts owed to National Resources and HSBC;

(2)  the defendant would be able to receive a sum of about $50,000 to $100,000 in cash;

(3)  no repayment of the loan would be necessary in the first 8 months after the creation of the loan; and

(4)  the defendant would benefit from a lower interest rate.

13.  At the end of this telephone conversation, Mr Kong told the defendant that the paper work for the loan would be done after the Mid-Autumn Festival, and left a contact number for the defendant.

14.  On the same day, the defendant called up Mr Kong several times and made further enquiries. He urged Mr Kong to secure the loan as soon as possible. Mr Kong therefore asked the defendant to go to INC’s office immediately and make the loan application. The defendant did so accordingly.

15.  The defendant then met Mr Kong later within same day at INC’s office, at which Mr Kong explained to the defendant that:

(1)  The defendant could mortgage the Property and borrow 60% of its value which was $1,200,000 (Mr Kong did not mention the name of the lender);

(2)  Interest would be charged at 8% per annum;

(3)  The loan would be repaid by 360 monthly instalments, each instalment was about $5,000 to $6,000; and

(4)  There would be no need to pay any instalments for the first 8 months after drawing down.

16.  Mr Kong then asked the defendant to sign the following documents:

(1)  a consultation form;

(2)  an authorization letter; and

(3)  a Loan Application and Referral Retainer Agreement (客戶委託申請貸款及轉介協議書).

17.  Mr Kong also told the defendant that he had to open a bank account with Hang Seng Bank, which the defendant did so on 5 September 2014.

18.  Having opened a new account with Hang Seng Bank, the defendant was taken by Mr Kong to a solicitors’ firm, Messrs. Darin Leung & Partner (“DLP”), to complete the transaction.

19.  In the office of DLP, the defendant met a male who introduced himself as a solicitor. This solicitor requested the defendant to sign an authorization letter for the purpose of making enquiries of his loans from National Resources. The solicitor also asked the defendant to sign the Loan Agreement which was prepared by DLP.

20.  He also met Mr. Ho, a staff member of the plaintiff (“Mr. Ho”), who explained the following documents to the defendant and asked him to sign thereon:

(1)  A declaration by the borrower (借款人聲明書);

(2)  A Schedule of Special Loan Disbursement Arrangement;

(3)  The Personal Loan Agreement;

(4)  A Declaration by the Borrower and Guarantee (借款人及擔保人聲明);

(5)  A form of summary of the provisions of the MLO; and

(6)  A Repayment Schedule.

21.  This was the first time when the defendant knew that the plaintiff would be the lender of the Loan.

22.  Mr. Ho showed the defendant 2 cheques in the respective sums of $280,000 and $920,000, and told the defendant that the cheque in the sum of $280,000 would be applied directly towards the repayment of the 2 loans owed by the defendant to National Resources, and any surplus thereof would be refunded to the defendant.

23.  Mr Ho then handed over the cheque in the sum of $920,000 to the defendant who signed a receipt for the same as requested. The defendant was also given some copies of documents. The defendant then left DLP with Mr Kong.

24.  After leaving DLP, the defendant went to Hang Seng Bank with Mr Kong, who asked the defendant to deposit the cheque for $920,000 and hand over the cash of $920,000 withdrawn to the former for INC’s handling. The defendant did so accordingly.

25.  In around mid-September 2014, the defendant was informed by DLP by phone that his 2 loans with National Resources had been repaid and a surplus of about $34,000 had been refunded to his account.

26.  In around late September 2014, the defendant attended the office of INC and enquired with Mr Kong on the repayment of the HSBC Revolving Credit Facility and on the payment of cash of $50,000 to $100,000 to him. Mr. Kong then explained that out of the $920,000:

(1)  $600,000, being 50% of the Loan, was charged as INC’s Consultancy Fee;

(2)  $268,800 was deducted as the interest of the Loan payable to the plaintiff being the first 8 monthly repayment instalments;

(3)  The remaining sum of $51,200 would be applied towards paying various application fees charged by the Housing Authority (“HA”)and legal costs.

27.  Mr Kong told the defendant that, as a result of the above expenses, no money was left for repaying his outstanding HSBC Revolving Credit Facility.

28.  Mr Kong suggested to the defendant that he could borrow a sum of $1,300,000 by mortgaging the Property so as to clear the debts owed to HSBC and the plaintiff respectively.

29.  Upon the defendant’s agreement to do so, Mr Kong took the defendant to another room within INC’s office to meet a Ms Fung (“Ms Fung”) who introduced herself to be from another company known as Chung Shun Property (“Chung Shun”). Mr Kong told the defendant that Ms Fung was specialised in making application for HA consent.

30.  Under the guidance of Ms Fung, the defendant had taken a number of steps in his application for HA consent. For example, he had applied to delete the name of his younger sister from the list of occupants of the Property in early October 2014. He had collected various utilities invoices for the purpose of handing them over to Ms Fung in early November 2014. He had also attended the HA Office at Tak Tin Estate in late December 2014.

31.  On around 10 February 2015, Ms Fung faxed 5 pages of receipts issued by the plaintiff to the HA Office as proof of payment of 5 instalments towards the Loan.

32.  In early March 2015, Mr Kong asked the defendant to produce the original title deeds of the Property so that they could be provided to the bank for mortgage loan application.

33.  On 31 March 2015, the defendant went to INC’s office and demanded Mr Kong to return 2 monthly instalments ($67,200) out of $268,800. Mr Kong agreed to do so, provided the defendant in turn agreed to sign a requestto terminate the application for HA consent, and a receipt for $600,000 as Consultancy Fees to INC, which the defendant duly did.

34.  The breakdown of the Loan of $1,200,000 is set out in the following table:

Cheques	Breakdown	Description
$280,000		Repayment to National Resources with the balance refunded to the defendant
$920,000	$600,000	Consultancy Fee
	$201,600[1]	6 instalments payable to the plaintiff
	$51,200	Various application fees and legal costs on application to HA
	$67,200	Refunded to the defendant on 31 March 2015
Total: $1,200,000

THE DEFENDANT’S CASE

35.  It is the defendant’s pleaded case that:

“34. […] INC was in fact a firm, or a group of persons, who acted as employees, or agents of or parties acting for or in collusion with the Plaintiff, to charge or receive interest or remuneration or reward in the form of Consultancy Fee or under other label whatsoever from the Defendant in contravention of sections 27 and 29 of the [Money Lenders] Ordinance.”

[…]

35A. The Defendant further avers, he is entitled, pursuant to section 27(4) and 29(10) of the [Money Lenders] Ordinance, to recover from the Plaintiff the amount of $920,000 with interest at an enhanced rate from 5^th September 2014 until payment, or to have the same set off any amount actually lent to the Defendant as if the same is recoverable by the Plaintiff from the Defendant despite the amount lent was made under an illegal transaction perpetrated by the Plaintiff.

36. By reason of the matters aforesaid, the Defendant avers the Loan Agreement and the Personal Loan Agreement are both illegal and unenforceable in that the effective rate of interest far exceeds 60 per cent per annum, and are in contravention of Section 24 of the [Money Lenders] Ordinance. The Defendant is thus under no legal obligation to perform any of the contractual obligations under the Loan Agreement and the Personal Loan Agreement.

[…]

37. Further and/or alternatively, by reason of the matters aforesaid, the Defendant avers the Loan Agreement and the Personal Loan Agreement are both extortionate and the Court shall reopen the transaction so as to do justice between the parties pursuant to Section 25 of the [Money Lenders] Ordinance.”[2]

36.  In the defendant’s final submission, his counsel submitted that:

(1)   No matter whether collusion is found, the effective rate of interest of the Loan would be 60.57% per annum and therefore the Loan would be unenforceable;

(2)  Alternatively, upon the finding of collusion and the court’s acceptance that the cheque of $920,000 was issued to facilitate payment of its proceeds to the intermediary at the earliest opportunity and that it was not envisaged that such proceeds would go to the defendant, the effective rate of interest of the Loan would be 116.12% per annum and therefore such a loan would be unenforceable;

(3)  Further, or in the further alternative, the defendant is entitled to avail himself of the re-opening relief under section 25 of the MLO or the setting off relief against the plaintiff under section 27(4) of the MLO.

THE PLAINTIFF’S CASE

37.  The plaintiff denied that it had any knowledge of the communication between the defendant and Mr Wong of HSBC, nor did it have any business, connections and knowledge of Mr Kong and/or INC prior to these proceedings. It did not pass any of the plaintiff’s forms or documents to INC and/or any other third party prior to these proceedings.

38.  It was alleged that the defendant was referred to Mr Tang Hoi Tong Darryl (“Mr Tang”), the sole director and shareholder of the plaintiff, on 4 September 2014 by a Mr So (“Mr So”) of Rainbow Mortgage Services Limited (“Rainbow Mortgage”) by phone, and it was in this telephone conversation that Mr So gave the particulars of the defendant’s property and other details to Mr Tang for his consideration.

39.  It was further said that Mr So had to refer the defendant’s application for loan to the plaintiff because Rainbow Mortgage was unable to grant the loan at the material time due to insufficient cashflow.

THE LAW

40.  As aforesaid, the defendant relies on sections 24, 27 and 29 of the MLO in his defence herein. I will therefore set out the relevant parts of these sections below, together with the definitions of “effective rate”, “interest” and “principal” under section 2 of the MLO:

Section 2 – Interpretation

effective rate, in relation to interest, means the true annual percentage rate of interest calculated in accordance with Schedule 2;

interest does not include any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid includes 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;

principal, in relation to a loan, means the amount actually lent;

Section 24 – Prohibition of excessive interest rates

(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).

(3) – (5)  […]

Section 27 – Charges for expenses etc. not recoverable

(1)  Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

(2)  [repealed]

(3)  Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.

(4)  If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.

Section 29 – Offences by money lenders

(1) – (9)  […]

(10)   Any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender who charges, recovers or receives any sum as for or on account of any costs, charges or expenses (other than stamp duties or similar charges) referred to in section 27(3) or demands or receives any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof commits an offence.

(emphasis added)

41.  It can be seen from the above that the phrase “in collusion with” has appeared in sections 27(3), 27(4) and 29(10) of the MLO. Indeed, it is the defendant’s case that INC/Mr Kong has been acting in collusion with the plaintiff in the subject transaction, and it is alleged that the fees and expenses charged by INC/Mr Kong should be taken into account when the court is considering whether the plaintiff has been in breach of the MLO.

42.  It is therefore necessary to consider the meaning of “in collusion with”.

43.  Parties have no dispute on the applicable legal principles in this regard.

44.  I should start with the Court of Final Appeal case of HKSAR v Wong Kwok Wai [2013] 16 HKCFAR 191, in which Tang PJ held that the question to ask and answer in that case, in which the subject offence concerned was that provided under section 29(10) of the MLO, was:

“whether the persons who are said to have acted in collusion were playing the same game”

45.  In Ever-Long Finance Limited v Yeung Wah Lung by Yeung Kwai Fa Bonnie, his guardian ad litem[2017] 1 HKLRD 500, Deputy Judge Simon Ho had the following to say:

“90. Coming back to the guiding test of ‘playing the same game’ as expressed by Tang PJ in Wong Kwok Wai to decide whether the person concerned has acted in collusion with the money lender against the aforesaid statutory backdrop, such person would appear to be one who identifies its interests with the money lender’s rather than the borrower’s. In my view, to qualify as the collusion under s 27(3) and (4), it would be sufficient for such person and the money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. I take this to be the essence of the term ‘collusion’ as appeared in section 27(3) and (4) to meet with the statutory intent and purpose, and in accordance with the test of ‘playing the same game’ as expressed by Tang PJ in Wong Kwok Wai.

91. Mr Lau contends that ‘collusion’ here means ‘conspiracy’, and the defendant must demonstrate there had been a prior agreement between the moneylender and the financial intermediary (ie Hong Kong Construction in this case) to extract the consultancy fee from him. Mr Lau further submits that no evidence of such agreement can be discerned from Bonnie’s affirmations.

92. With respect, I do not accept such submission because ‘collusion’ in the statutory context of MLO is in my view a wider concept than ‘conspiracy’. Proving ‘Conspiracy’ is one of the ways to prove ‘collusion’, but that should not be the only way. Trickery may take different forms and the collusion under s 27(3) and (4) should not be so narrowly construed as Mr Lau contends, otherwise it would unnecessarily hamper the effectiveness of s 27(3) and (4) in protecting the borrower under the statutory framework of MLO.

93. The conventional usage of ‘collusion’ does not appear to be so confined as Mr. Lau contends either. It seems to me that the natural and ordinary meaning of the term ‘collusion’ under s.27(3) and (4) is broad enough to cover ‘co-operation between parties to deceive or otherwise to do harms to others’.” (emphasis added)

46.  The above paragraphs have been cited with approval by Kwan VP in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong [2020] 4 HKLRD 831 (at paragraph 49 thereof).

47.  In Gain Wealth Global Credit & Investment Limited v Lam Hau Kay [2018] HKDC 796, it was held by Deputy Judge C To that:

(1)  “Playing the same game” under section 29(10) of the MLO does not necessarily entail the non-culpable nature of the collusion (at paragraph 59 thereof);

(2)  As to what game is to be played, section 27(3) of the MLO refers to the charging, recovering and receiving of any fees, on top of stamp duties or similar charges, by the money lender and other entities for or in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan. The game is therefore the stripping away of the borrower’s assets (whether from the loan or otherwise) by imposing additional fees on top of the interest (at paragraph 60 thereof);

(3)  The word “collusion” should not be interpreted narrowly. To construe otherwise, an intermediary who somewhat involves in the lending and borrowing process would, by reason of its ambiguous relationship with the lender, fall outside the statutory net and would be able to impose charges on the borrower, which is the evil the MLO intends to avoid (at paragraph 65 thereof);

(4)  Although the term “collusion” is often interpreted as “agreeing together” or “by agreement, or acting in concert”, the broad definition of “playing the same game” does not require any explicit or implicit agreement to be found (at paragraph 67 thereof);

(5)  The cooperation referred to in paragraph 90 of Ever-Long Finance Limited (supra) may take many forms. The lender and the entities in collusion may act together or separately. They may act simultaneously, or in disjunctive temporal periods. They may act complementarily or supplementarily. They may appear to act independently, but if the arrangement including their roles and conduct taken as a whole is to facilitate the imposition of a charge or the receipt of a sum in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan, such conduct should also be caught by the MLO (at paragraph 70 thereof).

48.  The adjudication of the case may not necessarily be ended with a finding on whether there has been collusion between the plaintiff and INC/Mr Kong. In the event it is ruled that there has been such collusion, this court should then proceed to consider some other matters.

49.  As far as sections 27(3) and 27(4) of the MLO are concerned, Kwan VP explained in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong (supra) that:

“35. In deciding whether the defrauded monies would come within ‘costs, charges or expenses’ or ‘remuneration or reward’ of the plaintiff’s loan, we are inclined to think that the true nature or substance of the payments should be considered, and not with regard to the falsehood under which the borrower or intending borrower was labouring under. Section 27(3) makes it unlawful, not just for the money lender to charge or receive the types of payment specified, but extends it to ‘any person acting … in collusion’ with the money lender and section 27(4) provides that any money paid in contravention may be recovered from ‘such person or from the money lender’. In charging the defendant and receiving the payments from her, it could fairly be said that the object of the persons acting in collusion with the plaintiff was to receive their ‘remuneration or reward’ in obtaining the loan for the defendant, or it could be said that the payments were the ‘costs’ for obtaining the loan. For these provisions to be engaged, it is not necessary to find that the money lender was somehow involved in the fraud pertaining to these payments. Whatever the object of the plaintiff’s collusion might be as regards the defrauded monies is irrelevant.

36. […] this would mean that these amounts might in principle be recoverable from the plaintiff under s.27(4) […]”

50.  At this point, what Kwan VP said in paragraph 65 in the same Judgment should be noted. I would also quote paragraph 64 thereof for the sake of completeness:

“64. Mr Yuen contended that since this sum of $37,000 was an amount charged by the plaintiff in contravention of section 27(3), this sum ‘may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly)’ as provided in section 27(4). Hence, $37,000 should not be taken into account again by deducting it from the contractual amount of the principal.

65. We do not accept this contention. It does not follow from the finding that an amount charged in contravention of section 27(3) would necessarily be set off against the amount actually lent under the remedies provided in section 27(4). As noted in Skyline Credit Ltd v Leung Hing Chung at §§131 to 134, section 27 gives additional and/or alternative remedies to the borrower when the requirements therein are satisfied and it is up to the borrower whether to invoke his rights under section 27(4) and if so which of the three options in that provision he would wish to pursue according to the circumstances of the case (setting off against the amount actually lent is one of the options). The choice rests with the borrower and the lender does not have the right to invoke section 27(4).”

51.  Pausing here, it should be borne in mind that the defendant’s counsel has primarily argued that the effective rate of interest herein is more than 60% in the present case. While he has also referred to section 27(4) of the MLO, this was only his alternative case.

52.  Another question which the court has to consider is whether the defrauded monies should be treated as “interest”.

53.  As far as the monies which are paid to the money lender are concerned, the question is whether such payment would be caught by the definition of “interest” under section 2 of the MLO. In other words, whether such an amount is in excess of the principal and has been or is to be paid or payable in consideration of or otherwise in respect of a loan.

54.  The question is less straight forward if the monies were paid to the fraudsters. This was how Kwan VP put it in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong (supra):

“48. There is no problem with treating as interest any amount in excess of the principal that the borrower was made to pay to the lender under whatever name, or to an agent of the lender who sought and received such payment on its behalf. The difficulty with scams of this type is that very often it could only be established on the available evidence that the fraudster was acting as an intermediary, in putting the lender in contact with the borrower and passing on information obtained from the borrower to the lender. And that is the case here.

49. We do not accept Mr Ho’s submission that a finding of collusion between the plaintiff and the fraudsters would mean that a party to the collusion should be legally liable for the fraudulent act of the other party. As rightly stated in Ever-Long Finance Ltd v Yeung Wah Lung at §§90 to 93, ‘collusion’ in the context of sections 27(3) and (4) is a wider concept than ‘conspiracy’; there was no need to establish a prior agreement between the lender and the intermediary to extract payment from the borrower in a fraudulent way, it would be sufficient for the lender and the intermediary to co-operate with each other to do or abstain from doing something with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. In E-way (Hong Kong) Property Credit Ltd v Fung Wing Tim [2019] HKDC 39, it was held that although the available evidence was sufficient to establish collusion, it was not sufficient to establish an agency relationship between the lender and the fraudster (at §§83, 100). Insofar as the judge has held that payments to the fraudsters were payments to the plaintiff’s agents as agents in the legal sense, we think the judge was in error, as there is no evidence that those payments were sought or received on behalf of the plaintiff.

50. We go on to consider whether an unlawful payment in contravention of section 27 made to an intermediary without the lender’s involvement could be treated as ‘interest’ within section 2(1).

[…]

55. In our view, to qualify as “interest” under section 2(1), the amount is not required to be paid or payable to the lender or its agent. It could be paid to someone else so long as it is ‘paid or payable in consideration of or otherwise in respect of a loan’. Where there is no evidence of any involvement of the lender regarding the monies defrauded by the intermediary and nothing to link the payment by the borrower with the loan made by the lender, that could be difficult to establish. […]”

55.  The next question is what should be treated as the amount of the “principal”. It can be seen from the Court of Appeal Judgment in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong (supra) that:

(1)  A sum which was deducted as an upfront fee was not included in “the amount actually lent” by the lender as it never went to the borrower and was not applied to discharge any legal obligation owed by the borrower to the lender. The Court of Appeal considered that there was no “double counting” in deducting this upfront fee to arrive at the deemed principal even though the same amount had been included as part of the interest (at paragraph 62 thereof);

(2)  “It does not follow from the finding that an amount charged in contravention of section 27(3) would necessarily be set off against the amount actually lent under the remedies provided in section 27(4). As noted in Skyline Credit Ltd v Leung Hing Chung at §§131 to 134, section 27 gives additional and/or alternative remedies to the borrower when the requirements therein are satisfied and it is up to the borrower whether to invoke his rights under section 27(4) and if so which of the three options in that provision he would wish to pursue according to the circumstances of the case (setting off against the amount actually lent is one of the options). The choice rests with the borrower and the lender does not have the right to invoke section 27(4)” (at paragraph 65 thereof);

(3)  The Court of Appeal considered it appropriate in that case to deduct from the principal a sum of money representing proceeds of the cash cheque issued to the borrower as it could be inferred that the cash cheque was issued to facilitate payment of its proceeds to the intermediary at the earliest opportunity and it was not envisaged that such proceeds would go to the borrower, who was issued a separate cheque marked “account payee only” (at paragraph 65 thereof).

56.  Once the respective amounts of the principal and interest are determined, the effective rate of interest can be calculated.

THE ISSUES

57.  Mr Ho for the defendant suggested that there are the following 4 issues in the present case:

(1)  Whether the plaintiff, or its employee(s), acted in collusion with INC or its employee(s) in charging the defendant costs, charges, expenses, or other payments in the procuring or obtaining of the Loan under the Loan Agreement and the Personal Loan Agreement;

(2)  Whether the sums charged and paid by the defendant to INC as agent of the plaintiff on account of such costs, charges, expenses or other payments are to be treated as deemed interest for the purpose of calculating the effective rate of interest of the Loan;

(3)  What is the amount actually lent to the defendant by the plaintiff or the deemed principal for the purpose of calculating the effective rate of interest of the Loan;

(4)  Whether the effective rate of interest of the Loan is in excess of 60% per annum, and if not, whether the defendant is entitled to re-open the transaction under section 25 of the MLO or to set-off the monies paid to INC against the plaintiff under section 27(4) of the MLO.

58.  I will consider these issues in turn below. However, before I do that, I should give my general assessment on the credibility of the witnesses.

THE WITNESSES

59.  When assessing the credibility of witnesses, I would follow the general principles set out by Deputy High Court Judge Eugene Fung SC in his Judgment in Hui Cheung Fai & Another v Daiwa Development Limited & Others (HCA 1734/2009, unreported, 8 April 2014):

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) […]

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination. They are particularly apposite in a case like the present where very serious allegations (akin to allegations of fraud) have been made by the Son against the defendants.

83. In approaching the evidence in this case, I have also borne in mind that the allegations made by the Son are very serious, and that the more serious the allegation sought to be proved is, the more cogent the evidence relied upon to support it must be: see Re H (Minors) [1996] AC 563at 586D-587F (Lord Nicholls) and ADS v Brothers (2000) 3 HKCFAR 70 at 77J-78G (Lord Hoffmann NPJ).”

60.  In the present case, the plaintiff has called two witnesses, Mr Tang and Mr Ho, whereas the defendant has not called any other witness apart from himself.

Mr Tang

61.  As aforesaid, Mr Tang was and is the sole director and shareholder of the plaintiff.

62.  He did not deal with the defendant personally. Hence, in his evidence, he mainly focused on the general business practice of the plaintiff and how the plaintiff obtained this business concerning the defendant.

63.  As far as the general business practice of the plaintiff is concerned, he stated, among other things, that:

(1)  While accepting that the plaintiff would get business by way of agents’ referral, the plaintiff would not pay such agents;

(2)  He would assess borrowers’ means of repayment before approving any loan applications;

(3)  The plaintiff had never provided any service to loan applicants to obtain consent from the HA for re-mortgaging their properties under the Home Ownership Scheme and Tenants Purchase Scheme.

64.  In relation to the defendant’s loan application, Mr Tang stated, among other things, in his witness statement that:

(1)  The defendant’s loan application was referred to him on 4 September 2014 by Mr So of Rainbow Mortgage which could not take up this business because of insufficient cashflow;

(2)  Mr So contacted him on 4 September 2014 by phone, and it was in this telephone conversation that Mr So gave him the particulars of the defendant’s property and other details for his consideration;

(3)  He was not worried about repayment issue because he was told that the defendant was going to apply for HA consent;

(4)  He told Mr So that the loan could not be drawn-down before 3pm on 5 September 2014 because the plaintiff needed time to arrange for fund transfer and documentation;

(5)  He asked Mr Ho (his only staff) to handle this transaction with the defendant. He instructed Mr Ho to inquire and confirm with the defendant some matters before the drawdown of the loan including but not limited to:

(i)  The defendant’s intention to apply for HA consent;

(ii)  The defendant’s agreement to repay all his then existing loans with other financial institutions. While the loan with National Resources would be settled through the plaintiff’s solicitors, the defendant had to commit to settle the Revolving Credit Facility with HSBC himself;

(6)  At all material times, the plaintiff did not have any business, connection and knowledge with/about INC and/or Mr Kong;

65.  I am of the view that Mr Tang is not a credible witness. He had contradicted himself in a number of matters even though his evidence was not long. He had obviously tried to give the court an impression that the plaintiff had nothing to do with any alleged improper dealing, and as a result, he had to change his evidence from time to time so as to avoid being accused of having any involvement in the alleged “trick” which the defendant said he had fallen into. Some examples are given below:

(1)  Although he said that one of the matters that he must take into account when approving a loan application was the amount of monthly salary of the applicant, he admitted that he had no information on the defendant’s salary when he approved his loan application, but only afterwards when he read the defendant’s loan application form;

(2)  He was then cross-examined further as to what the defendant’s salary was. He then said it seemed that the defendant did not fill in his monthly salary in the form;

(3)  Although he admitted in his witness statement that Mr So did tell him that the defendant was referred to Rainbow Mortgage (Mr So’s company) through a HA consent application agent, he denied in court that he knew where Mr So got this business from;

(4)  At the beginning of the cross-examination, he said that it was absolutely not right (“絕對唔啱”) for INC to charge the defendant for $600,000, but he changed his evidence later on and said that that was service charge. He also tried to justify this charge as a “business decision” on the part of the parties concerned;

(5)  In his witness statement, he stated that one of the principles which the plaintiff would hold while doing business was that the plaintiff would not pay any fees to intermediaries. When he was cross-examined on this, he said that he had asked his colleague to ask the defendant on 5 September 2014 whether he (the defendant) had paid any fees to Rainbow Mortgage. It appeared to me that he was trying to give the court an impression that paying fees to Rainbow Mortgage was not right and therefore he had instructed his colleague (in fact, his staff Mr Ho) to check that the defendant did/would not do so (even though the question asked was not about the defendant’s payment but the plaintiff’s payment to agents). However, Mr Tang subsequently accepted under cross-examination that (i) at the material time, it was common for loan applications to be introduced by agents; (ii) agents needed to make a living, and therefore someone had to pay fees to agents; (iii) the plaintiff would not pay any fees to agents. He even commented that it was a matter between the borrower and the agent whether fees would be paid. In such circumstances, he was paying lip service when he said he would make sure that there was confirmation that no agency fees would be paid by the defendant. Looking at the matter in another way, given his acceptance of the matters stated above and his comments, it was pointless for him to instruct his staff to check whether the defendant would be paying any fees to the agent. I am of the view that it is incredible that such instruction was given;

(6)  While he initially insisted in court that Rainbow Mortgage was not an intermediary (中介) but a fellow money lender (行家), and that the business was referred to the plaintiff only because Rainbow Mortgage could not take up this business at the time due to insufficient cashflow, he subsequently said he had instructed his colleague to confirm with the defendant whether he had paid any fees to Rainbow Mortgage. I wonder why this was necessary if Rainbow Mortgage was really not an intermediary (中介) as alleged. The plaintiff’s counsel attempted to explain away the inconsistency and confusion on the part of Mr Tang as to whether Rainbow Mortgage was an agent by saying that “HA consent application agent” was not the kind of intermediary Mr Tang had in mind when he was cross-examined on the capacity of Rainbow Mortgage. I do not think such an explanation can be accepted, because that still cannot explain why Mr Tang thought it necessary to instruct Mr Ho in confirming with the defendant whether the latter had paid any fees to Rainbow Mortgage;

(7)  In his witness statement, he stated that the plaintiff required time to arrange for funds to be transferred to its solicitors, before the defendant could drawdown the loan. However, when the defendant’s counsel suggested to him that the plaintiff could control which bank the solicitors’ firm would use when issuing the cheque to the defendant by transferring money into the desired bank account, Mr Tang changed his evidence and said there was no need for the plaintiff to do any fund transfer in the present case because the solicitors’ firm was holding the plaintiff’s money from previous transactions which could readily be used.

Mr Ho On Yue (formerly known as Mr Ho Chun Wan)

66.  While he was cross-examined in court, Mr Ho stated that because of long lapse of time, he could not remember a lot of the details of his encounter with the defendant, and he could only tell the court his general practice when he handled the plaintiff’s clients. However, on the other hand, it could be seen that he had given quite detailed description of what had happened in relation to this transaction at the material time in his witness statement which he signed on 20 January 2020.

67.  During cross-examination, I noticed that Mr Ho had referred to his witness statement very frequently when he was asked questions, and then simply read out what was stated therein as his answers. He had given this court a very strong impression that he did not dare depart from what was stated in his witness statement and that led to my suspicion that the witness statement was not drafted upon his instruction but was prepared by someone else who, in effect, put words into his mouth.

68.  An extraordinary feature of this case is that while Mr Ho seemed to be able to remember a lot of the details on 20 January 2020 (i.e. 5 years and 4 months after the incident) when he signed his witness statement (otherwise he would not have been able to give such details in that statement), he had lost most of such memory at the trial 1 year and 9 months later. I of course understand that as a human, it is natural for Mr Ho to gradually lose his memory on what happened in September 2014. Nevertheless, it is difficult to understand how he could remember very clearly what happened at the material time in January 2020 but not in October 2021. That had added my suspicion that his witness statement was not drafted pursuant to his instructions at all.

69.  My suspicion was reinforced by the fact that he could not tell whether information on the composition of the plaintiff’s business was contained in his witness statement. What happened was that when he was cross-examined on the percentage of the plaintiff’s business which involved bridging loans granted pending the borrowers’ applications for re-mortgaging their flats under the Home Ownership Scheme, he said that he had no idea at all because he had not counted. He was then asked whether this information was in his statement. He paused for a long time and could not give any answer. In my view, if his witness statement was really given by him, he should have no difficulty in telling the court that such answer could not be found in his witness statement, because he had never had any knowledge on this matter. The fact that he could not answer whether such information could be found shows that he did not know what was included in his statement as it was not prepared by himself.

70.  It was because of such suspicion that I asked him to explain the whole process of preparation of his witness statement. Mr Ho had had a very long pause during which he did not give any answer. Eventually, he said he did tell Mr Tang what he remembered about this case while he was having a drink with him. After a short while, he added that he had told Mr Tang on more than one occasion (also during drinks) about what he remembered. He explained that he was then asked to sign his witness statement in a solicitors’ firm. He said he had read his witness statement before he signed.

71.  It is noted that Mr Ho had not mentioned that he had ever met anyone from the solicitors’ firm for the purpose of drafting his witness statement. The only person that he had talked to for this purpose, according to him, was Mr Tang.

72.  I have no hesitation in finding that Mr Ho’s witness statement did not reflect what he knew or remembered. It was a document prepared by someone else for him, and words were “put into his mouth” as if this was really a statement given by him. If Mr Ho was telling the truth, then that means Mr Tang could remember all the details which Mr Ho told him over a drink (or even in more than one drink gathering) and then he was able to convey all such details to the drafter of Mr Ho’s witness statement. This is inherently improbable.

73.  Further, I do not believe that Mr Ho had read his witness statement at all before he signed as alleged. If he had done so, he would not have failed to notice that, while he had changed his name to “何岸諭” on 3 May 2019, the name that was put down in the statement was his former name (何震寰). He did not even notice such a mistake when his former name was printed right beneath the signature line above which he signed. This shows that he just signed on whatever document presented to him without reading.

74.  I would therefore not give any weight to his evidence, especially when it is inconsistent with that given by the defendant.

The defendant

75.  Although the defendant is a person with mental disability due to congenital illness and has been receiving Disability Benefits from the Government, I found while he was giving evidence in court that he could communicate with others without any problem. He had no difficulty in understanding the questions asked of him in court. He could also be quite smart at times: for example, he could point out my mistake right away when I mixed up the dates of two statements which he gave the Police.

76.  He had given this court an impression that he was trying hard to emphasize that he was a victim in a scheme aiming at stripping away his assets, and for that purpose he, at times, had not been totally forthcoming when he was cross-examined. Occasionally, he had pretended to be ignorant, or deliberately said something which would bolster his case against the plaintiff. For example:

(1)  Although it is quite clear that he was having cashflow problem in September 2014, he refused to admit that but alleged that he had different sources of income and that he had kept cash at home (tens of thousand dollars) which could not be reflected in his bank statements. His evidence that he had different sources of income was not supported by his bank statements. Further, in my view, given his admission that he was only earning around $11,000 to $15,000 per month whereas his monthly repayment obligation was more than $11,000, he was clearly in financial difficulty at the material time;

(2)  He stated in court that Mr Kong had threatened him many times that if he (the defendant) did not cooperate, the plaintiff would be notified. However, the defendant had never mentioned about these threats in his witness statements given to the Police nor in the statement filed herein. I am of the view that he had made this up so as to strengthen his case against the plaintiff;

(3)  Even though he alleged in court that he had decided not to mortgage his Property anymore back on 22 September 2014, it is evident that he had still been doing what he was instructed to do by Ms Fung (allegedly Mr Kong’s colleague) for the purpose of applying for HA consent. In his application for HA consent, he even agreed to put down $1.3 million as the loan amount which was suggested by Mr Kong in the first place;

(4)  When he was cross-examined on the reason why he was so cooperative, the defendant stated that whenever he told Ms Fung that he did not want to mortgage his Property, Ms Fung would ask him to explain to the plaintiff himself. The defendant even stated that he had called up Ms Fung more than 10 times in late October 2014[3] for the purpose of telling her that he did not want to apply for mortgage loan anymore. While it is evident that he did make those calls to Ms Fung (because they are all supported by the records provided by the mobile phone service provider), I do not believe that the purpose of those calls was to express his unwillingness to apply for mortgage loan. Firstly, this was never mentioned in his previous witness statements. Secondly, if he had succumbed to Ms Fung’s threat (that the matter would be reported to the plaintiff in the event of the defendant’s refusal to cooperate) made in their first telephone conversation on 27 October 2014, there was simply no point for the defendant to call Ms Fung for the same purpose repeatedly on 28, 29, 30 and 31 October 2014 as alleged;

(5)  When he was challenged in court as to the reason why he provided Ms Fung with copies of documents such as invoices for utilities charges in relation to the Property, the defendant alleged that he did not know the reason why he had to give her those copies, and he just did it in accordance with Ms Fung’s request. This is incredible. He was only trying to be consistent in his case that he had been reluctant to carry on with the HA consent application;

(6)  He even alleged during cross-examination that he did not know he had made an affirmation in the presence of a staff of the HA in support of the HA consent application. This is again incredible, because the HA staff member must have explained to him that he was making an affirmation.

77.  Be that as it may, it does not mean that this court should necessarily reject the entirety of the defendant’s evidence. To the contrary, I am of the view that he, in general, was telling the truth, especially those parts of his evidence which were included in the witness statement. This is because the content of his witness statement is largely consistent with the statements which he gave to the police in 2015, and most of which were adopted word-for-word from the statement given to the Police in 2015. Furthermore, much of his evidence is supported by contemporaneous documents.

COLLUSION

78.  I will now turn to a very important issue in the present case: whether the plaintiff had acted in collusion with INC/Mr Kong.

79.  I accept the defendant’s case that the plaintiff and INC/Mr Kong were playing the same game in stripping away the defendant’s assets by imposing additional fees on top of interest. They had co-operated with each other to do acts with a view to facilitate the conclusion of the loan transaction against the defendant’s interest.

80.  The above finding is reached on the basis of the following matters.

81.  Firstly, the finding of collusion is supported by this court’s finding below that the plaintiff had informed Mr Kong that DLP was going to issue a Hang Seng Bank cheque to the defendant so as to facilitate Mr Kong being able to obtain cash from the defendant right after the defendant had deposited the cheque which he obtained from Mr Ho.

82.  In relation to this matter, the following facts are not disputed:

(1)  DLP was the only solicitors’ firm used by the plaintiff since the plaintiff’s commencement of business more than a year before the subject loan transaction with the defendant was entered into;

(2)  At the material time, DLP had accounts with more than 10 banks in Hong Kong;

(3)  The plaintiff had entered into around 10 to 15 loan agreements every month;

(4)  Even if a crossed cheque was issued, the payee of the cheque would be able to withdraw cash out of the said cheque upon its being deposited by the payee into his account in the same bank (provided of course there was sufficient balance in the drawer’s account) because no clearance of the cheque would be necessary;

(5)  The cheque issued by DLP on this occasion was a cheque drawn on DLP’s account with Hang Seng Bank.

83.  I accept the defendant’s evidence that he had been instructed by Mr Kong to open an account with Hang Seng Bank for the purpose of the Loan.

84.  In my view, there is no reason why a new Hang Seng Bank account was required for the purpose of the Loan (because the defendant could have deposited DLP’s cheque into his HSBC account), unless it was necessary to make sure that the defendant would be able to withdraw the amount of $920,000 immediately upon his deposit of the said Hang Seng Bank cheque. It appears to me that it was exactly because of this that Mr Kong gave such an instruction to the defendant.

85.  The question is, how could Mr Kong know beforehand that DLP would issue a cheque of Hang Seng Bank, particularly when DLP had bank accounts with all the major banks in Hong Kong[4]?

86.  There is no evidence that Mr Kong or INC had any prior relationship with DLP. On the other hand, as aforesaid, DLP had been the plaintiff’s solicitors for no less than 120[5] loan transactions within 12 months preceding the subject loan agreement with the defendant. I therefore infer that the plaintiff must have a close working relationship with DLP, and that it would not be difficult for Mr Tang or Mr Ho to find out from DLP which bank account DLP would use when issuing the cheque to the defendant. It can also be inferred that the plaintiff had played the same game with INC/Mr Kong by informing Mr Kong this important piece of information (that DLP was going to issue a cheque drawn on its Hang Seng Bank account), so that he could instruct the defendant to open a new Hang Seng Bank account accordingly. This was done for the purpose of facilitating the defendant’s payment to Mr Kong at the earliest opportunity rather than having to wait for the clearance of the cheque.

87.  Secondly, the finding of collusion is supported by the fact that the plaintiff had approved the defendant’s loan application even though it must have been apparent at the time of such an application that the defendant could not meet the payment obligations under the Loan Agreement and the Personal Loan Agreement.

88.  It was Mr Tang’s evidence that one of the principles held by the plaintiff was that the borrower’s means of repayment would have to be assessed by him. However, he accepted that when he approved the defendant’s loan application, he did not know the level of income on the part of the defendant.

89.  It has now transpired that the defendant was not earning much, only up to around $15,000 per month, at the material time.

90.  Given such a low level of income, the defendant was simply incapable to repay the plaintiff for the monthly instalments of $33,600.

91.  Even if I accept the plaintiff’s case that one of the conditions for the grant of the Loan to the defendant was the latter’s agreement to apply for mortgage of his Property, this could not have assisted the defendant in discharging his payment obligation under the Loan Agreement and the Personal Loan Agreement with the plaintiff because it is common ground that the whole process (obtaining HA consent and applying to a bank for mortgage loan) would take time.

92.  Yet, the plaintiff approved the defendant’s loan application.

93.  Why did the plaintiff agree to do so even in such circumstances? In my view, it is because the plaintiff knew that Mr Kong would hold up the total amount of 8 monthly instalments in the sum of $268,800 ($33,600 x 8) for repayment purpose[6]. As I will discuss further below, the plaintiff had done acts to make sure that cash could be withdrawn right away on 5 September 2014 when the defendant deposited the cheque given by Mr Ho into his new Hang Seng Bank account.

94.  Pausing here, I should add that I have not forgotten Mr Tang’s evidence that:

“In the material times, most property related loan applications had been carefully assessed by me, before loans were granted. One of the important criteria was the value of the real property owned by the potential borrower. We all used to approve loan amount based on the loan-to-value ratio (the LTV). Some time, LTV is more important than the repayment ability of the borrowers since most of our transactions are either short terms loan with loan period of less than 24 months or bridging loan where borrowers indicated refinancing their properties with banks were under progress.”[7] (emphasis added)

95.  I do not believe that a reasonable money lender would not care about the borrower’s repayment ability at all even if the real property owned by the borrower is of high value, particularly when the property is not used as security for the loan as such. This is because litigation and enforcement of judgments take time. I am sure a reasonable money lender would rather have a borrower whom the lender is confident in his repayment ability. As far as the refinancing of the property is concerned, it should be borne in mind that in the present case, the refinancing procedure had not even been kicked off when the loan application to the plaintiff was made.

96.  Hence, what Mr Tang stated as quoted above is not accepted. He gave that evidence only in an attempt to explain away the (un)reasonableness in granting the Loan to the defendant.

97.  Coming back to the withholding of funds, another question is why 8 (instead of, for example, 6 or 10) months’ instalments were withheld by Mr Kong?

98.  In my view, it is more likely than not because of Mr Tang’s estimation that an application for HA consent and mortgage loan would take around 6 to 8 months to complete.

99.  It is because of this that there was an agreement between the plaintiff and the defendant that:

“借款人如在首8個月內提早還款，提早清還收費為8個月供款總額”[8]

100.  Hence, it was not a coincident that Mr Kong decided to withhold 8 months’ repayment instalments. He must have known that the plaintiff would be entitled to at least 8 months’ instalments even if the defendant could mortgage his Property earlier than expected and was able to repay the Loan in full before the expiry of 8 months.

101.  In my view, INC and Mr Kong had held up the money for the purpose of protecting the plaintiff’s interest.

102.  Thirdly, the finding of collusion is supported by the fact that the plaintiff did not withhold any money for repaying HSBC on the defendant’s behalf.

103.  It was Mr Tang’s evidence that one of the conditions of his approval of the defendant’s loan application was that the defendant would have to agree to repay all his previous debts. For this purpose, the plaintiff had held $280,000 for repayment to Natural Resources. However, the plaintiff did not do the same in respect of the defendant’s HSBC Revolving Credit Facility.

104.  The reason given by Mr Ho was that the defendant only disclosed his indebtedness to HSBC at DLP’s office, and as a result, there was not enough time to revise the cheques which had already been prepared. It was also alleged by both Mr Tang and Mr Ho that it was not possible for the plaintiff to repay such Revolving Credit Facility directly for the defendant.

105.  I reject the aforesaid evidence because:

(1)  Even before Mr Ho met the defendant on 5 September 2014, Mr Tang had already instructed him to make sure that the defendant would “commit to settle his revolving loan with the Hongkong and Shanghai Banking Corporation himself with the Loan”[9]. During cross-examination, Mr Tang also confirmed that when Mr So of Rainbow Mortgage first referred this business to him on 4 September 2014, Mr So had mentioned that the purpose of the potential borrower (i.e. the defendant) for getting the loan was to repay National Resources and HSBC, and the total amount of outstanding liability was four hundred odd thousand dollars. The figure no doubt matches the actual amount of liability owed by the defendant;

(2)  I do not understand why, and it does not make any sense to me, that the plaintiff could not deposit money into the defendant’s HSBC account directly for the purpose of repaying the amount owed under HSBC Revolving Credit Facility.

106.  It was submitted by the plaintiff’s counsel that the revolving nature of the liability owed to HSBC rendered it impossible to know the exact amount of money owed beforehand (supposedly, he meant as a result the cheques could not be prepared beforehand). This excuse simply cannot stand, because there was nothing which prevented the plaintiff from instructing DLP to issue a cheque in the full amount of the Revolving Credit Facility ($115,000) or even more so that the cheque could be deposited into the defendant’s HSBC account as repayment of the Revolving Credit Facility. The whole amount could be treated as part of the Loan advanced by the plaintiff. It does not matter even if such an amount was larger than the defendant’s liability owed to HSBC because the surplus would be in the defendant’s bank account which he could use at any time subsequently. It should be remembered that, in fact, a similar approach had been adopted when the cheque of $280,000 payable to National Resources was prepared. It is evident that the overpaid amount (around $34,000) was refunded, and the plaintiff did not say that there was any problem with this. In the case of HSBC, no refund was even necessary in the case of overpayment.

107.  I should further add that, if the plaintiff so wished, the defendant could have been requested to check the outstanding balance of his Revolving Credit Facility by using internet banking at DLP. That was what the defendant had been asked by Mr Kong to do on the day before (4 September 2014).

108.  In court, Mr Ho quoted credit card repayment as an example in support of his allegation that a third party would not be allowed by the bank to make repayment on behalf of a credit card holder. First of all, I have very great doubt whether he was correct. In any event, we are not dealing with a credit card loan here. So what he said is totally irrelevant for our purpose.

109.  It appears to me that the real reason for the plaintiff not withholding any money for repayment to HSBC was that there was not enough money left after deducting $600,000 (consultancy fee) and $268,800 (8 months’ instalments) from the cheque of $920,000. In my view, the plaintiff had played the same game with INC by not keeping any money for repayment to HSBC. Mr Ho stated that the HSBC entry in the Schedule of Special Loan Disbursement Arrangement was typed thereon by a typewriter but the plaintiff’s office did not have a typewriter at all. It was said that it shows that the entry was typed in the solicitors’ firm. It may be so, but I do not accept that it was typed there by reason of the late disclosure on the part of the defendant of his HSBC Revolving Credit Facility as alleged.

110.  Fourthly, the finding of collusion is supported by this court’s acceptance that Mr Ho of the plaintiff did cooperate with Mr Kong in making the defendant believe that Mr Kong would repay the HSBC Revolving Credit Facility for him.

111.  It was the defendant’s evidence that, on 5 September 2014, the following happened in the solicitors’ firm:

“何先生並說，完成貸款後，必然財務會直接出支票清還欠中潤的欠款，滙豐銀行的欠款則會交由江先生代我清還。當時我親耳聽到，何先生向江先生說，當在清還滙豐銀行的欠款後，必需將收據交回必然財務保管。”

112.  Although Mr Ho denied in court that he had had any conversation with Mr Kong at the solicitors’ firm, I would prefer the defendant’s evidence in this regard. I note that the defendant had already given a similar account in his statement to the Police dated 21 April 2015[10].

113.  It is now clear that Mr Kong had taken the entirety of $920,000 from the defendant on 5 September 2014 once the cheque was deposited into the defendant’s Hang Seng Bank account. No money had been left to the defendant to make any repayment to HSBC.

114.  It is also apparent that Mr Kong had had no intention to make any repayment to HSBC on the defendant’s behalf, because there was no sufficient money left.

115.  It is my finding that it is more likely than not that Mr Ho knew on 5 September 2014 when he said the words quoted above that Mr Kong was not going to make any repayment to HSBC. He was only saying that so as to make the defendant hand over the money to Mr Kong more willingly after the amount of $920,000 was withdrawn from Hang Seng Bank. In this sense, Mr Ho and Mr Kong were playing the same game.

116.  In fact, it should also be pointed out that despite (i) the plaintiff’s alleged principle that the borrower must agree to repay all previous loans by using the loan granted by the plaintiff and (ii) the stipulation in the Schedule of Special Loan Disbursement Arrangement that the defendant had to provide the plaintiff with his proof of repayment to HSBC by 12 September 2014, it is evident that the plaintiff did not do anything to chase up the defendant for the compliance of the above stipulation.

117.  Mr Tang stated in court that he did not follow this matter up because he did not have the defendant’s contact number (“the Lack of Contact Particulars Excuse”). I do not accept such an explanation. If Mr Tang wanted, he must be able to get such information from Mr Ho. Further, Mr Tang told the court that the defendant had filled in a 4-page loan application form[11]. I would infer that the defendant must have given his contact number in this form (it is noted that the defendant had also filled in his mobile phone number in the INC referee form). Hence, Mr Tang must have been able to find the information he wanted, if he so wished, from the file kept in the plaintiff’s office. Alternatively, Mr Tang could have asked Mr Ho to follow this up for him. Mr Tang said he had assumed that Mr Ho would follow this up. This is incredible and I do not accept such evidence. If this was true, Mr Tang would not have relied on the Lack of Contact Particulars Excuse at all.

118.  In my view, the plaintiff did not follow up the matter because the plaintiff was actually not interested in making sure that the defendant would repay all his then existing debts. The plaintiff was only minded to clear the defendant’s loans in respect of which the Property had been used as security. Moreover, the plaintiff knew well that the defendant simply could not repay HSBC at the material time, since Mr Kong had taken the entirety of $920,000 from the defendant.

119.  Mr B K Ho for the defendant also invited this court to make a finding of collusion by relying on 5 receipts which Ms Fung faxed to the Housing Department for the purpose of the defendant’s HA consent application.

120.  In this respect, I should first of all set out the following matters:

(1)  By virtue of interrogatories served by the defendant on the plaintiff on around 16 March 2020, the defendant asked, among other questions, whether receipts were issued in relation to 6 monthly payments allegedly made. Mr Tang answered by affirming on 21 September 2020 in his Affirmation that:

(i)  The plaintiff had kept good record of the monthly instalments paid by the defendant;

(ii)  The defendant’s monthly instalments from October 2014 to March 2015 were made by cash payment directly to the plaintiff at the plaintiff’s office;

(iii)  The plaintiff did not have the record of who made the aforesaid 6 instalment payments;

(iv)  For repayments made at the plaintiff’s office, the plaintiff must issue original receipts to the person who made the payments. The plaintiff would keep a copy of the original receipts for record;

(v)  For the said 6 monthly repayments, receipts were issued and given to the person(s) who made the payments, before he/she left the plaintiff’s office.

(2)  Mr Tang exhibited the aforesaid 6 receipts[12] to his Affirmation. Each of these receipts was of half A4 size. They were all initialed and affixed with the plaintiff’s chop.

(3)  During his cross-examination, Mr Tang further explained that:

(i)  The original receipts which were printed on A4 paper were in fact two identical copies of the same receipt each of ½ A4 size;

(ii)  When a payment was made at the plaintiff’s office, one copy thereof would be given to the payer (“client’s copy”) and the other half of the A4 paper (i.e. the other copy of the same receipt) (“lender’s copy”) would be kept as the plaintiff’s record;

(iii)  As far as the lender’s copy was concerned, it would not be filed immediately in the plaintiff’s folder. If cash was tendered for repayment, Mr Ho would put the lender’s copy of the receipt together with the cash received in a tray, and Mr Tang would count such cash first, and he would only sign on the lender’s copy upon his confirmation that the amount of the cash was correct;

(iv)  There was no need to sign on the client’s copy at all;

(v)  The lender’s copy would be kept in the plaintiff’s file as record.

(4)  Mr Ho stated that:

(i)  A folder was designated for the defendant’s loan;

(ii)  While it was printed on the receipt that: THIS IS A COMPUTER PRINTED RECEIPT, NO SIGNATURE IS REQUIRED”, he would sign and affix the plaintiff’s chop on the client’s copy upon payer’s request.

121.  On 10 February 2015, Ms Fung faxed 5 pages of documents to the Housing Department (receipts for the months of October 2014, November 2014, December 2014, January 2015 and February 2015) for the purpose of the defendant’s HA consent application. Each page contained 2 identical receipts issued by the plaintiff for one monthly instalment made to repay the Loan. In other words, these were in fact the whole pages of the A4 size papers which were supposed to be divided into two halves. But they were not so divided, and as a result, each of the 5 pages contained both the client’s copy and the lender’s copy of the same receipt. Furthermore, no one had ever signed on these copies, nor could the plaintiff’s chop be found thereon.

122.  This brings the question as to why Ms Fung could have the “whole page” receipts – pages which included not only the client’s copy but also the lender’s copy of the receipt for each of the 5 months concerned.

123.  Mr Tang stated it might well be that the defendant had come up to the plaintiff’s office and asked for those receipts. I do not accept this evidence. If the defendant had indeed done so, all the plaintiff would have given him would be the client’s copy of the receipt which had all along been kept in the folder designated to contain the defendant’s loan documents. Those receipts had all been affixed with the plaintiff’s chop. However, no such chop could be found in the copies submitted by Ms Fung.

124.  Mr Tang then stated that, when the defendant came to the plaintiff’s office and requested for receipts, his staff might well have printed the receipts from the computer system again without going through the plaintiff’s folder so as to save time. This explanation is rejected. As Mr Tang admitted, he did not have personal knowledge on what actually happened. This was therefore just his speculation. Further, I do not believe that the plaintiff’s staff would have given the defendant the whole page of the A4 paper which included the lender’s copy of the receipt as well.

125.  If Ms Fung did not get those copies of the receipts from the defendant, where could she get them from?

126.  Counsel for the defendant suggested that:

“[It] could only have been either Mr Kong who was party to the game and might have access to P’s system and unwittingly generated the receipts as in [C28/234-238] without realizing the incorrect ones at the bottom part of the page and passed them on to Ms Fung. Or by Ms Fung herself who was party to the game and therefore had access to P’s system and failed to realise the mistake in the bottom part of the page. This submission is advanced for the sake of completeness under this heading, and it is not necessary for D to insist that Ms Fung was also party to the collusion.”

127.  Pausing here, the “mistake” referred to by the defendant’s counsel is that while the purpose of payment in one half of the A4 paper was stated to be “Repayment: HK$33,600”, the purpose of payment stated in the other half of the A4 paper (which was supposed to be identical) was “Rental: HK$33,600”. The plaintiff’s witnesses had been cross-examined quite extensively on this discrepancy, and they both blamed the old software which was used by the plaintiff. Although I find this explanation difficult to accept, I do not think this matter could shed any light on the issues before the court.

128.  Coming back to the submission of the defendant’s counsel, I must say, although his suggestions of possibilities are attractive, at the end of the day, I have come to the conclusion that I cannot accept them, as they may well be too speculative.

129.  On the other hand, Mr Cheng for the plaintiff had stated the following in paragraph 26 of his written reply submission:

“[…] The receipt could also be reprinted by pressing a few buttons. The receipts sent to HA [C28/234-238] should be a reprinted copies since under normal circumstances, half of the receipts page would be given to client per the oral evidences of [Mr Tang] and [Mr Ho]. Since the reprinted receipts for HA did not serve any purpose within P, it could possibly reprinted upon the request of INC while they made the last payment on 5 February 2015 [C28/238]” (emphasis added)

130.  I am quite surprised that such a line of submission was made. I wonder how come the plaintiff would agree to provide INC on 5 February 2015 with the 4 receipts issued previously, since INC was not the borrower. If anything, this only gives further support to the court’s finding that there was collusion between the plaintiff and INC.

131.  In any event, with or without the last point in relation to the 5 receipts, I am of the view that there are enough materials to support the court’s finding of collusion. The plaintiff and INC/Mr Kong were obviously playing the same game.

THE EFFECTIVE RATE OF INTEREST

Deemed interest

132.  There is no dispute that the contractual interest is in the amount of $403,200.

Deemed principal

133.  The amount of $600,000 consultancy fee should be deducted from the principal, because this was not an amount “actually lent”.

134.  For the same reason, the amounts of $201,600 and $51,200 should likewise be deducted from the principal.

135.  The aforesaid 3 sums of money were part of the sum of $920,000. It may be recalled that this sum of $920,000 was paid by virtue of a cheque issued by DLP at the instruction of the plaintiff. I have found above that the plaintiff had, for the purpose of facilitating Mr Kong’s getting this sum of money at the earliest opportunity, informed Mr Kong that DLP was going to issue a cheque of Hang Seng Bank, so that Mr Kong could instruct the defendant to open a new Hang Seng Bank account beforehand. The plaintiff therefore did not envisage that the proceeds of this cheque would go to the defendant. In such circumstances, it is appropriate to deduct those 3 sums of money from the principal of $1,200,000.

136.  The deemed principal is therefore $347,200.

The effective rate of interest

137.  Adopting the figures above, the effective rate of interest would be 116.129% per annum ($403,200 / $347,200 x 100%).

138.  Mr Ho has also suggested that the effective rate of interest could amount to 361% per annum if the sums of $600,000, $201,600 and $51,200 are added on as deemed interest. Given the effective rate of interest arrived at in the preceding paragraph already exceeds 60% per annum, I do not think it is necessary for me to do further calculation on the rate as suggested by Mr Ho. In fact, Mr Cheng has also conceded in his written reply submissions that if the court finds herein that it could infer that the plaintiff had done any act to facilitate payment of the cheque proceeds to the intermediary at the earliest opportunity, the effective rate of interest would be more than 60% and the Loan Agreement and the Personal Loan Agreement entered into between the plaintiff and the defendant would be unlawful and unenforceable.

NATURE OF THE DEFRAUDED MONIES

139.  Given my findings above, there is strictly speaking no need to consider the last issue as suggested by counsel for the defendant. However, I will do so briefly for the sake of completeness.

140.  For convenience, I reproduce here the breakdown of the Loan:

Cheques	Breakdown	Description
$280,000		Repayment to National Resources with the balance refunded to the defendant
$920,000	$600,000	Consultancy Fee
	$201,600[13]	6 instalments payable to the plaintiff
	$51,200	Various application fees and legal costs on application to HA
	$67,200	Refunded to the defendant on 31 March 2015
Total: $1,200,000

141.  It can be seen from the above table that there are 5 elements in the loan of $1,200,000. There is no dispute that out of the sum of $280,000, a large part of which had been used to repay National Resources and the balance thereof had been refunded to the defendant. Furthermore, out of the sum of $920,000, $67,200 was refunded to the defendant at the end of the day on 31 March 2015. Hence, only 3 remaining sums require further discussion, namely, the consultancy fee of $600,000, the 6 monthly instalments kept by INC totalling $201,600 and $51,200 which was allegedly application fees and legal costs for HA consent.

$600,000

142.  There is no dispute that INC had charged the defendant for a consultancy fee of $600,000.

143.  Mr Cheng for the plaintiff argued that this fee was not 100% related to the Loan. He suggested that this was a fee charged in relation to the whole re-financing programme including the bridging loan with the plaintiff and the subsequent HA consent and eventually the mortgage loan application with a bank.

144.  I do not accept this argument, because it has been clearly provided in the Loan Application and Referral Retainer Agreement (客戶委託申請貸款及轉介協議書) signed on 4 September 2014 that:

“3. 當甲方申請之債務重組或貸款一經成功批核，甲方需即時支付乙方的顧問及轉介費。

費用為總貸款額港幣$1100000 – 1200000之50%*(不包括放債機構收取之手續費)

費用為定額收費港幣$550000 – 600000*(不包括放債機構收取之手續費)”

145.  It was expressly provided that the fee of $600,000 was charged as INC’s remuneration for obtaining a loan. Mr Cheng argued that the “總貸款額港幣$1100000 – 1200000” may not necessarily be referring to the plaintiff’s loan. I do not agree. The indisputable facts are that a loan of $1,200,000 was granted by the plaintiff and that $600,000 had been charged on the same day. There is no evidence that the defendant had obtained any other loan through INC.

146.  I therefore hold that the charge of $600,000 would come within section 27(3) of the MLO.

147.  Before I leave this issue, I should add that, in the course of the trial, it had been put to the defendant that when he signed the aforesaid Loan Application and Referral Retainer Agreement, he knew well that the fee of $600,000 would be charged. In my view, no matter whether he knew it or not, it would not have any bearing on the conclusion reached above, because the true nature or substance of the charge would not be affected by the knowledge of the defendant.

$201,600

148.  The next item is the sum of $201,600 which is equivalent to 6 monthly instalments of $33,600 each.

149.  The amount of $201,600 was taken away from the defendant right after the Loan was granted. In my view, this sum should be categorised as “costs” or “charges” for or in connection with the obtaining of the loan from the plaintiff.

150.  It was therefore all caught by section 27(3) of the MLO.

$51,200

151.  The defendant said Mr Kong told him that the sum of $51,200 was “Various application fees and legal costs on application to HA”.

152.  If we consider this sum of money by reference to this label, this sum would not be caught by section 27(3) of the MLO.

153.  However, as guided by Kwan VP in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong (supra), this court has to consider the true nature or substance of the payments and not with regard to the falsehood under which the defendant was labouring under when deciding whether the defrauded monies would come within “costs, charges or expenses” or “remuneration or reward” of the plaintiff’s loan pursuant to section 27(3) of the Ordinance.

154.  There is simply no evidence that the application fee for HA consent could amount to $51,200. It is only evident that Chung Shun had paid $3,720 on the defendant’s behalf to HA as administration fee for the HA consent application on around 2 December 2014.

155.  Further, up to the time when the defendant signed the confirmation to terminate his application for HA consent, he had not instructed any solicitor to handle his mortgage loan application yet.

156.  I therefore infer that the sum of $47,480 ($51,200 – $3,720) was only another item of charge imposed by INC for procuring or obtaining the loan from the plaintiff. It should also be caught by section 27(3) of the MLO.

157.  By virtue of section 27(4) of the MLO, but for the finding above on the lawfulness and enforceability of the Loan Agreement and the Personal Loan Agreement, the defendant is entitled to set off the sums of $600,000, $201,600 and $47,480 respectively.

ORDER

158.  For the above reasons, the plaintiff’s claim against the defendant is hereby dismissed.

COSTS

159.  I make a costs order nisi that the plaintiff shall bear the defendant’s costs (including all costs reserved), with certificate for counsel, to be taxed if not agreed.

160.  The defendant’s own costs shall be taxed in accordance with the Legal Aid Regulations.

161.  The above order nisi shall become absolute in the absence of application to vary (which shall be made by letter, if any) within 14 days hereof. Any application to vary the costs order nisi shall, with the consent of the parties[14], be dealt with on papers.