CHOW WUN SING WINSTON v. YIU CHUN LUK

HCMP2923/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2923 OF 2002

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J U D G M E N T

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1.  The plaintiff commenced these proceedings by Originating Summons to recover from the defendant a loan of $2.5 million together with interest and payments associated with the loan and also to obtain vacant possession of the property on which the loan is secured.   The defendant defends the claim on the ground that the loan and mortgage are void and unenforceable by reason of fraudulent and/or negligent misrepresentation and that the plaintiff was an unlicensed money lender.

Background

2.  The plaintiff is the director of Chow Sang Sang (“CSS”) Holdings International Limited (“CSS Holdings”), which is a listed company and has a number of subsidiaries.  He is also a director of Chow Sang Sang Finance Limited (“CSS Finance”) and Chow Sang Sang Nominees Limited (“CSS Nominees”), which are companies within the CSS group of companies.   The plaintiff's father and uncle are also the directors of these companies. 

3.  Between 1988 and 2001, CSS Finance held a money lender licence. It is the plaintiff's case that the borrowers were mainly purchasers of properties developed by the CSS group.  It is also the plaintiff's case that since about 1993, it had scaled down its lending business and very few new loans were made.

4.  CSS Nominees is engaged in the sale and purchase, management and leasing of properties for the CSS group.  It also provides services to the directors of the group, including the plaintiff and his father and uncle and their companies.  

5.  The plaintiff's uncle is the shareholder and director of a company called Happy Family Limited (“Happy Family”).  It is not a company within the CSS group.  Between 1994 and 2003, Happy Family held a money lender licence.  It did not actively solicit customers, but only took on referral customers, for example borrowers referred by solicitors firms.   

6.  The defendant is a businessman and engages in the import and export of toys.  He is the proprietor of a company called Hero Bicycle Corporation.  He also owns a factory in the Mainland.

7.  The defendant is the registered owner of the property at Flat D on 1^st Floor and Car Parking Space No.14 on Ground Floor, Hillsea Court, No.10 Cornwall Street, Kowloon (“the Property”).  In 1995, the Property was mortgaged to Hang Seng Bank.  It is the defendant's case that in about April 1995, he was in need of cash capital for his factory in the Mainland.

8.  It is common ground that the defendant came to meet with Mr Lee Yik Moon, Alex (“Alex Lee”).  Alex Lee was and is the assistant leasing manager of CSS Nominees.  He joined CSS Nominees in 1993.  Before that, he had worked for some developers and was experienced in property and lending matters. 

9.  There is considerable dispute as to how the defendant and Alex Lee came to be in contact with each other.  On the plaintiff's case, the defendant was referred to Alex Lee by a clerk of the solicitors firm, Messrs KC Tsang & Co (“KCT”) called Wan Po Ka.  The defendant, however, said it was a Mr Yu Ping Fai of Hang Seng Bank that suggested him to approach Alex Lee with a view to obtaining a loan from CSS Finance.

10.  What is not in dispute is that after Alex Lee had gone to the Property to conduct a valuation, the defendant signed a Chinese agreement dated 26 April 1995 (“the 1^st Agreement”) in the presence of Alex Lee.  Subsequently, the plaintiff also signed on it.

11.  Under the terms of the 1^st Agreement, the plaintiff would grant a $2.5 million loan to the defendant to be secured by a mortgage on the Property.  The loan was to be drawn down by 20 May 1995 and to be repaid within 24 months.  The interest on the loan was fixed at 15% p.a. or 6% above the bank's best lending rate, to be paid on a monthly basis. 

12.  The 1^st Agreement also provided for the payment by the defendant of a handling fee of $25,000 and a $1,000 valuation fee.

13.  Under the 1^st Agreement, the plaintiff and defendant were respectively described and referred to as the “mortgagee” (銀主) and “borrower” (借款人). 

14.  Subsequently, the defendant attended KCT and executed a mortgage on the Property dated 8 May 1995 in favour of the plaintiff (“the Mortgage”).

15.  Out of the $2.5 million, $837,221.47 was paid to Hang Seng Bank to redeem the Property.  After deducting the redemption money and the fees and charges of KCT, a sum of $1,640,113.53 was paid to the defendant.

16.  In accordance with the terms of the 1^st Agreement, the defendant issued cheques to pay for the handling and valuation fees as well as the monthly interest.  It is not in dispute that all these cheques were made payable to the plaintiff personally and delivered by courier service to Alex Lee at 1/F. CSS Building, 229 Nathan Road, Kowloon.

17.  The defendant did not make repayment at the expiration of the 24 months' term.  By a Chinese agreement dated 8 May 1997 (“the 2^nd Agreement”), the loan was extended for another 12 months on the same terms as before.  Similar extensions were made in subsequent years by four Chinese agreements dated 8 May 1998, 8 May 1999, 8 May 2000 and 8 May 2001 respectively (“the 3^rd to 6^th Agreements” respectively).  The last extension was up to 7 May 2002.   

18.  Both the plaintiff and the defendant had signed on each of the 2^nd to 6^th Agreements.  On each of the agreements, the plaintiff and the defendant were described and referred to as the “mortgagee” (銀主) and “borrower” (借款人).   Under the 5^th and the 6^th Agreements, the annual interest rate was reduced to 5% above the best lending rate.

19.  Since about October 2001, the defendant defaulted in the payment of interest.  A letter before action dated 18 July 2002 was sent by the plaintiff's solicitors to the defendant.  In response, the defendant issued two cheques post-dated to 31 July 2002 in favour of the plaintiff for payment of interest.  Both of them were dishonoured upon presentation to the bank.

The claim

20.  The plaintiff issued the Originating Summons in these proceedings on 26 July 2002.  On 30 April 2003, Master ordered the action to be continued as if begun by writ. 

21.  The plaintiff's claim is straightforward.  He claims for the repayment of the $2.5 million loan together with interest and late payment charges under the 1^st to 6^th Agreements.  He also claims for reimbursement for insurance premium and vacant possession of the Property under the Mortgage. 

The defence and counterclaim

22.  The defendant does not dispute that he had obtained a $2.5 million loan on the terms set out in the 1^st to 6^th Agreements and secured by a mortgage on the Property. 

23.  In his Amended Defence and Counterclaim, the defendant raised the following defences:

(1)        The $2.5 million loan was not a loan from the plaintiff, but from CSS Finance.  There was no contractual relationship between the plaintiff and the defendant.  As to the 1^st Agreement, the defendant signed it as a result of the fraudulent and/or negligent misrepresentations of Alex Lee that:

(a)        Alex Lee was the manager of CSS Finance and was authorized by CSS Finance to arrange a loan to the defendant;

(b)       CSS Finance was a licensed money lender;   

(c)        CSS Finance would issue monthly repayment schedules containing details of the interest and principal paid and outstanding. 

(2)        In about July 1996, the defendant borrowed a further loan of $800,000 from CSS Finance upon the inducement of Alex Lee that any repayment by the defendant would be applied to settle the $2.5 million.

(3)        The 1^st to 6^th Agreements and the Mortgage are void and unenforceable because:

(a)        CSS Finance and the plaintiff are unlicensed money lenders;

(b)       The two of them conspired to deceive, defraud and induce the defendant to sign the 1^st to 6^th Agreements and the Mortgage; and

(c)        The interest charged was also illegal, unreasonable excessive and oppressive. 

(4)        The defendant had fully repaid the two loans of $2.5 million and $800,000.

24.  It is clear from the documents that the averment of CSS Finance being an unlicensed money lender at the relevant time is unsustainable.  Likewise, the averment that there was a second loan of $800,000 from CSS Finance is not borne out by the evidence.  The relevant loan agreement shows that the lender was a Mr Wu Kam Chiu. 

25.  At the trial, not surprisingly, Mr Wong for the defendant did not seek to run all the pleaded defences.  As set out in his closing submission, he restricted the defence to two grounds.  Firstly, the plaintiff had, fraudulently or negligently, made false representations to the defendant that the loan was lent by CSS Finance, in reliance of which, the defendant entered into the loan transaction and the Mortgage.   Secondly, the plaintiff was an unlicensed money lender.  By reason of section 23 of the Money Lenders Ordinance, the loan and the Mortgage are void and unenforceable.  To complete the second defence, the defendant was granted leave to re-amend his defence and counterclaim by adding paragraph 27A that contains a specific plea of breach of the Money Lenders Ordinance.

26.  Mr Wong also confirmed that there is now no dispute that the defendant has not made repayment of the loan.  The amount of the outstanding interest payments is also not disputed.

27.  Apart from defending the claim, the defendant further counterclaims for the sums of $2,365,916.64, being interest he had paid to the plaintiff between May 1995 and March 2002, and $67,815, being the $25,000 handling fee and $1,000 valuation fees, insurance premiums and legal fees and payment made to KCT in connection with the redemption and mortgage of the Property.  The defendant says they were payments made under a contract unenforceable under the statue and void against public policy such that he is entitled to an order of restitution on the basis of money had and received.

28.  In reply, the plaintiff pleads that in the event the court finds that the plaintiff is an unlicensed money lender, it would be equitable to hold the loan and the mortgage enforceable to the extent the court considers equitable.

The evidence

29.  Both the plaintiff and the defendant gave evidence at the trial.  The plaintiff had also called Alex Lee as his witness.

30.  The evidence of the plaintiff and Alex Lee is that the defendant was referred to him by the clerk in KCT.  Happy Family was not prepared to grant a loan to the defendant.  On the suggestion of the plaintiff's father, Alex Lee approached the plaintiff to ask whether he was agreeable to make a personal loan to the defendant secured by the Property.  The plaintiff was apprehensive in the beginning, but eventually agreed to it after Alex Lee assured him of his assistance in managing the loan and having regard to Alex Lee's valuation of the Property.  Alex Lee then reverted to the defendant that while the finance company was not prepared to lend, a friend of his would be able to make a personal loan to him secured by a mortgage on the Property. 

31.  Eventually, KCT was instructed to prepare a mortgage.  The plaintiff paid $2.5 million to KCT by way of a cashier order.  The 1^st Agreement and the Mortgage were subsequently executed.  At the time the defendant signed the 1^st Agreement, Alex Lee had gone through the terms with him.  A receipt signed by the plaintiff was given to the defendant for the handling fee paid. Out of the $25,000 handling fee received, $12,500 was later paid to a Tang Che Lam of KCT on Wan Po Ka's instruction as introduction fee.  The copy of the cheque and the receipt were in evidence.  As for the $1,000 valuation fee, it was paid to CSS Nominees as Alex Lee was its employee.

32.  Thereafter, Alex Lee was responsible for the management and dealing with the documentation of the loan.  He prepared the notices on changes of interest rates, the letters demanding payment of interest in arrears and payment of premiums for renewing insurance policies and the like.  He would give them to the plaintiff's secretary for engrossment and then to the plaintiff for signature.  Alex Lee was also responsible for liaising with the defendant in connection with the loan and for dealing with the extensions of the loan when the term expired.

33.  As for the $800,000 loan from Mr Wu to the defendant, the plaintiff said he had no knowledge of it until the defendant raised it in this action.  He did not know Mr Wu. 

34.  In his first witness statement, Alex Lee said that he was not involved in this loan.  In his supplementary witness statement, he corrected himself.  According to him, Mr Wu is his friend and he had helped with the arrangement and documentation of the loan as well as the collection of the interest payments.  Alex Lee denied the suggestion that he had informed the defendant that the $2.5 million loan and the $800,000 loans were from CSS Finance. 

35.  Shortly before the commencement of the trial, the plaintiff voluntarily disclosed that he had on 18 December 1995 lent $1.8 million to a Mr Yeung Chak Lung (楊澤龍) on terms similar to those of the 1^st Agreement.  This was also arranged through Alex Lee and the sum had been repaid.   Both the plaintiff and Alex Lee were unable to recall the detailed circumstances surrounding this loan owing to lapse of time.  The plaintiff said these two loans were the only loans he had made to people he did not know.  He denied carrying on the business of money lending.

36.  As for the defendant, his evidence is that during his discussion with Mr Yu of Hang Seng Bank on the possibility of a second charge on the Property as he was in urgent need of cash for his business, he was suggested to approach CSS Finance and, in turn, to speak to Alex Lee.  After valuation of the Property, Alex Lee told him that CSS Finance agreed to the loan. 

37.  On about 26 April 1995, he signed the 1^st Agreement and paid the $26,000 handling and valuation fees.  The defendant accepted that Alex Lee had gone through with him the main terms of the agreement, such as the amount of the loan and the interest and the consequences of early repayment or of not drawing down the loan by the stipulated date.  However, his attention was not drawn to the fact the lender was the plaintiff and he had not noticed the appearance of the plaintiff's name and the description of him as the mortgagee on the document.  He said the first time he realised the plaintiff was the lender and mortgagee was when he was served with the Originating Summons in these proceedings. 

38.  The defendant said later in May, he went to KCT and signed the Mortgage.  He also said he did not know English and the contents of the Mortgage were not explained to him before he signed on it. 

39.  Then in July 1996, Alex Lee offered to make a further loan to him.  As he happened to need cash to purchase materials for his business, he agreed to borrow $800,000 on the security of the Property.  He signed a Chinese loan agreement.  Later, he also went to KCT to sign a mortgage.  As with the case of the $2.5 million loan, he had not noticed that the documents referred to Mr Wu as the lender and the mortgagee.

40.  In his witness statements, which had been adopted as evidence, the defendant said he stopped paying interest in early 2002 because he felt the interest was too high and the procedures were unclear (利息昂貴及手續不清).   He explained he came to this view because he had on one occasion made a repayment of $200,000 but was not given a receipt for it.  In cross-examination, however, he said that it was because of the fluctuations in the best lending rate, he had to find out the amount of interest every month, and it is because of this that he said the procedures were unclear.  As to the complaint that the interest rate was high, he said in cross-examination that on one occasion his accountant was unwell, so he had to deal with the interest payment.  It was then that he found out he had to pay so much interest.    

Assessment of the evidence

41.  Having regard to the evidence of the witnesses and the other materials before the court, I am satisfied that the plaintiff and Alex Lee are reliable witnesses and their evidence is to be preferred to that of the defendant.  The voluntary discovery of the loan to Mr Yeung by the plaintiff, though belated, is demonstrative of the open and candid approach he takes with regard to this piece of litigation.    

42.  By contrast, the defendant is less than forthcoming in his evidence.  His account is also inherently improbable and incredible.  This is particularly the case with his evidence that he did not know he was contracting with, and that the loan came from, the plaintiff until the commencement of these proceedings.  This assertion is simply untenable in light of the many contemporaneous documents before the court.

43.  There is first of all the 1^st Agreement.  It is typed written in Chinese, a language he is conversant with.  The document stated at more than one place that the plaintiff was the mortgage.  What is more, the plaintiff's name and his description as the mortgagee appeared right next to where the defendant affixed his signature.  It is hard to believe that he did not see or had no notice of the plaintiff's name and the description of him as the mortgagee when he executed the document.

44.  When he was cross-examined on this, the defendant said he thought the plaintiff was the representative of CSS Finance.  This is of course contradictory to his primary case that he had no notice of the plaintiff's name and description on the document.  Leaving that aside, he had no credible basis for thinking that the plaintiff was acting on behalf of CSS Finance when the plain words of the document said the plaintiff was the mortgagee. 

45.  As a matter of fact, the defendant's evidence on this became rather confusing and convoluted as the cross-examination went on.  At one point, he claimed Alex Lee told him the plaintiff was acting as the representative of CSS Finance, but he retracted from it when it was pointed out to him that this was never said in his witness statements.  Upon further cross-examination, he changed to say that he knew as a fact that the plaintiff was a member of the CSS group of companies.  That, however, is far from indicative of the plaintiff entering into the loan and mortgage transactions as a representative of CSS Finance.

46.  There is at the same time no explanation as to how he came to sign on the 2^nd to 6^th Agreements without realizing that the plaintiff was described as the mortgagee in all of these documents.  It is to be noted that these documents were sent to the defendant for signing.  He ought to have the leisure and time to read the contents before signing.

47.  There are also the many cheques that he had issued in favour of the plaintiff for paying interest and other expenses associated with the loan and the Mortgage.  The defendant explained that as he was frequently out of Hong Kong, he always signed a pile of blank cheques and left them to his accounts staff to fill out the payees and amounts as directed by Alex Lee.  He therefore did not know that the cheques were made out to the plaintiff.  In my view, it is simply incapable of belief.  The undisputed evidence shows that for more than six years between May 1995 and the end of 2001, cheques were issued on almost a monthly basis.  It is difficult to believe that the defendant never had the occasion to notice or be informed that the cheques were all made out to the plaintiff as opposed to CSS Finance, whom the defendant believed was the lender. 

48.  In this connection, it is interesting to note that the two cheques sent in July 2002, which were subsequently dishonoured, were made out to the plaintiff and further posted in an envelope addressed to the plaintiff, care of Mr Yeung of CSS Goldsmith Shop at 229 Nathan Road, Kowloon.  This is contradictory to the defendant's claim that it was upon the receipt of the originating process in these proceedings that he came to know of the plaintiff.    

49.  Equally implausible is the defendant's evidence on the many letters and notices from the plaintiff in connection with the loan.  Although they were sent to his residential address, he claimed he did not open a single one of them because he would bring them all back to the office to be opened and dealt with by his staff.  He said this was because they were business correspondences.  When it was put to him that they were private correspondences addressed to him personally, he changed to say that there were far too many such correspondences that he did not have time to handle.  When asked whether his staff would show him the letters and notices, he said the staff would group them in a pile for him, but he did not always read them.  All this simply defies common sense.  The defendant has to say this in order to explain how it was that in the course of some six to seven years, he never came to see the plaintiff's name and his description as the lender of the loan and the mortgagee of the Mortgage, and why he never took step to clarify the plaintiff's role if he genuinely thought he was borrowing from and contracting with CSS Finance.

50.  The credibility of the defendant's case is further put in doubt by his defence that the $800,000 loan was also a loan from CSS Finance, which is plainly contrary to the clear words of the loan document in question. 

51.  Additionally, there are various aspects of the defendant's evidence that show he is not a forthcoming and honest witness.  Both in his witness statement and oral testimony, the defendant said he did not know English and he did not know the contents of the Mortgage as they were not explained to him.  Yet, he did not explain how it was that he would sign the Mortgage in English.  He also claimed in his evidence that he had no experience of lending and obtaining facilities from banks.  When he was cross-examined and asked about the debit and overdraft entries in the bank statements he produced, he had no hesitation in claiming that he did not know how to read them and that he did not even know that the abbreviations “DR” and “OD” that appeared on the statements of his personal account stand for debit and overdraft.  He also claimed that Hang Sang Bank did not grant him any overdraft facilities.  When his attention was drawn to a statement of the Hang Seng Bank for October 1995, which showed his account to be overdrawn by more than $100,000, the defendant spontaneously said this was only a temporary arrangement, and that this was not an “OD”.  Clearly, he knows the term “OD” and what it stands for, as one would expect of an experienced businessman like him.

52.  It is not to be forgotten that the defendant is a university graduate and has some 30 to 40 years of business experience.  As noted above, his oral testimony and demeanour in court demonstrates that he is a clever, alert and sophisticated man.  All this is out of tune with the ignorance and cavalier attitude towards his financial affairs that the defendant tried to portrait in his evidence.        

53.  The fact is the defendant's case and account is fraught with so much inherent inconsistencies and improbabilities that the defendant has to come up with a lot of illogical explanations.  One of these relates to the reasons for stopping payment of interest.  He had repeatedly said in his witness statements that he stopped payment because the interest was high and the procedures were unclear.  He had also explained what he meant by this in his statements.  He put forward two documents which he said evidenced his repayment of $200,000 to which a receipt had not been given to him.  The two documents are only the 3^rd Agreement dated 8 May 1999 and a page of accounting entries.  The only $200,000 entry on the page was an income of $200,000 on 14 October, without any indication of the year to which this related, or to whom the entries related.  They hardly support his claim that he had made a repayment of $200,000 under the loan in question.

54.  When he was cross-examined on this aspect of his case, the defendant became evasive and suggested that it was because his accountant was unwell that the interest payments fell into arrears.  He was also asked if he felt the interest was high and the procedure unclear, why did he send two more cheques in July 2002 to pay for the interest after receiving the letter before action.  He came up with the answer that this was because Alex Lee told him to do so while assuring him that he would ask his boss to reduce the interest.  The defendant's evidence is that if the interest was indeed reduced, he would continue with the loan and interest payments.  Otherwise, he said, he would repay the entire outstanding amount.  The truth is his two cheques were dishonoured and the defendant never repaid the loan or the outstanding interest.  If indeed he was dissatisfied with the interest and that he was contemplating terminating the loan, why did he not take steps to do so or at least to arrange alternative finances?      

55.  Not only is the defendant's account self-contradictory and illogical, there are also a number of occasions when the defendant just made up the story as he went along.  A clear instance relates to his explanations on how it was that he only came to know of the plaintiff when this action was brought.  His primary position is that he had not noticed the plaintiff's name and description on the 1^st Agreement when he signed it.  In the course of his evidence, he shifted to say he thought or was told by Alex Lee that the plaintiff was representing CSS Finance.  Towards the end of his evidence, he suddenly came up with the saying that because he did not bring his spectacles with him, he had not looked at the 1^st Agreement.  He developed it further and claimed that Alex Lee assured him that it was a computer-generated document and that he would not be cheated (唔會賣你豬仔).  In the same breath, he volunteered that Mr Yu of Hang Seng Bank told him CSS Finance was a listed company with solid reputation (金漆招牌).  All of these were said for the very first time notwithstanding he had made several witness statements, whether aided by solicitors or on his own, the last of which were only made days before the trial commenced.

56.  I have no hesitation in rejecting the defendant's evidence where it contradicts with the plaintiff and Alex Lee.  I find as a fact that the loan in question and the Mortgage were entered into between the plaintiff and the defendant in the manner as related by the plaintiff and Alex Lee.  I reject the defendant's case that Alex Lee represented to him that the loan was from CSS Finance or that the plaintiff was merely representing CSS Finance.  I accept that the defendant had been taken through the terms of the 1^st Agreement and he was well aware that the plaintiff was the lender of the loan and the mortgagee of the Property.

Defence of misrepresentation

57.  I turn to deal with the defences raised by the defendant.  The burden is on the defendant to make good his defence of misrepresentation.  In my view, the defendant has come nowhere near establishing it.  Consequent upon my rejection of his evidence and my findings on the facts surrounding the making of the loan and the Mortgage, there is no evidential and factual basis for the plea.

58.  Not only is there no evidence of any misrepresentation, there is also grave doubt as to the materiality of the alleged representation.  There is further no case of inducement and detrimental reliance. 

59.  In April 1995 when the loan was made, the defendant was admittedly in urgent need of cash.  He was not able to obtain further advances from his banker, Hang Seng Bank, though he had wanted to take out a further charge on the Property.  He should be more than happy to accept the loan.  There is nothing to show, and there is no logical reason why, he would not have taken the loan if the lender were not CSS Finance.  He also suffered no detriment or change of position by reason of entering into the 1^st Agreement or borrowing from the plaintiff instead of CSS Finance.  To the contrary, he had benefited from the arrangement.  He successfully paid off the mortgage with Hang Seng Bank and further had the use of some $1.6 million.        

60.  The defence of misrepresentation must fail.

Defence under the Money Lender Ordinance, cap.163 (MLO)

61.  I turn next to the other defence that the plaintiff was an unlicensed money lender when the loan was incurred in April 1995.

62.  Und section 7(1)(a) of MLO, No person shall carry on business as a money lender without a licence.

63.  Section 23 of MLO provides for the consequences of non-compliance with section 7 in civil proceedings.  It reads:

“No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:

Provided that if the court is satisfied that in all the circumstances it would be inequitable if a money lender who did not satisfy it that he was licensed at the relevant time was thereby not entitled to so recover such money or interest or to enforce such agreement or security, the court may order that the money lender is entitled to recover such money or interest or to enforce such agreement or security to such extent, and subject to such modifications or exceptions, as the court considers equitable. ”

64.  There is no dispute that the plaintiff does not hold a money lender licence at the material time. The issue in this trial is whether the plaintiff was a money lender within the meaning of MLO.  The burden is on the defendant to prove that the plaintiff was a money lender: Conroy v. Kenny [1999] 1WLR 1340, 1343H.

65.  Section 2 defines money lender as meaning “every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business.”

66.  The defendant relies on both limbs of the definition.  He firstly says the plaintiff had continuously carried on the business of a money lender and for a considerable period of time.  Alternatively, he says that the plaintiff had held himself out as carrying on the business of money lending.  I shall deal with these arguments in turn.

67.  In Conroy v. Kenny, Kennedy LJ held that the test for determining whether a person was carrying on the business of a money lender was whether at the time of the loan, the business of the person was that of making loans.  This is a question of fact to be decided by reference to the facts and circumstances of each case.    

68.  It is clear from section 2 of MLO that for a person to be a money lender, money lending needs not be his sole business.  The authorities are also clear that the fact that it was an isolated transaction or that there was just one single loan is not conclusive of whether the lender is in the business of making loans: Conroy v. Kenny, supra, at 1346, Cornelius v. Phillips [1916-17] All ER Rep 685 at 691D-E.

69.  Mr Wong cited the case of Newman v. Pyke (1908) 25 TLR 127 and submitted that a certain degree of system and continuity would show that the person is carrying on the business of money lending.  In that case, Walton J held that the plaintiff could not be said to be in the business of money lending after taking into account that: (i) there were very few lending transactions before the loan in question; (ii) the loans were mostly to friends and relatives; and (iii) there was no holding out or advertising by the plaintiff.  In his judgment, Walton J pointed out that whether a man is carrying on the business of a money lender is in each case a question of fact.  He said that it was not enough to merely show that the man has on several occasions lent money at remunerative rates of interest; to bring a person within the statutory meaning of money lender, a certain degree of system and continuity about his transactions must be shown.  Clearly, the fact that there was a certain degree of system and continuity is only a relevant factor.  It is not determinative of the issue.

70.  In the present case, the defendant's argument that the plaintiff had been carrying on the business of money lending continuously and for a considerable period of time is contrary to the evidence before the court.  There is no evidence of any or any similar lending by the plaintiff before the loan in question.  The only other loan that the plaintiff had made is the loan to Mr Yeung in December 1995.  It is correct that the loans to the defendant and to Mr Yeung carried attractive remunerative interest rates, that, however, is not enough to say that the plaintiff was in the business of money lending, let alone in the business continuously and for considerable time.

71.  It appears the main thrust in the defendant's case that the plaintiff was carrying on the business of money lending is that the terms of the 1^st Agreement and the documentation of the loan were clear and properly prepared, and that the plaintiff had kept a good record of the interest payments and had computer-generated repayment schedules.  It is said that the plaintiff had used elaborated loan documents and kept in place a sophisticated system of management.

72.  There is no doubt that the 1^st Agreement was properly drafted and prepared and the loan was by and large well documented and managed.  However, in considering whether these are good and clear indicators of the plaintiff being in the business of money lender, it is important not to lose sight of the fact that the plaintiff had entrusted the tasks of setting up and arrangement of the loan and the subsequent management with Alex Lee.  It is not disputed that Alex Lee was experienced with mortgage and money lending matters as he had been helping with the businesses of Happy Family and CSS Finance.  Alex Lee gave evidence that he prepared and drafted the documents for the loan and in the process, had consulted precedents used by Happy Family and CSS Finance.  It is also his evidence that he had adopted the practices of these companies in managing the loan for the plaintiff. 

73.  In the circumstances, there is no surprise that terms such as “貴户”, which is a reference to the defendant as a customer, and “本公司”, which is inapt as the plaintiff is an individual and not a company, had been employed in the notices and letters sent to the defendant.  Likewise, given Alex Lee's experience and the resources available to him, it is only natural and logical that the loan is generally well documented, so much so that notices of fluctuations in interest rates and warnings of imposition of default interest on late payments and the like were sent to the defendant.  For the same reason, there is nothing untoward about the computer-generated repayment schedules.  Alex Lee had testified that they were produced from a computer software kept in CSS Nominees for the use of the CSS group, including CSS Finance and companies of the plaintiff's father. 

74.  The fact that the loan agreements and the related documents were properly prepared and that the loan was well documented and managed, when viewed in the context of the case, do not amount to indicia of the existence of an elaborated and sophisticated system of money lending, or of the plaintiff being in the business of money lending.

75.  On the other hand, there are several features which show a want of adequate care and uniformity in the management of the loan.  Firstly, the contents and format of the notices and letters to the defendant were not standardized.  Secondly, there was clear omission to change the lender's name from Eimoling (the name of the plaintiff's father's company) to the plaintiff's name in adapting the computer software for the production of the repayment schedules.  Such an error is unlikely to occur if the plaintiff was in the business of money lending and had been doing so continuously and for considerable time.  On the contrary, it shows there was no ready system in place.

76.  I agree with Mr Sham's submissions that the facts of this case are consistent with an individual making an investment by lending at remunerative interest rates and with proper security.  In my view, the defendant has failed to prove by direct or indirect evidence that the business of the plaintiff at the material time was making loans.

77.  As to the alternative argument that the plaintiff had held himself out as carrying on the business of money lending, it is based on four grounds.  They are: (i) the fact that the discussion of the loan took place at 1/F CSS Building when the registered office of CSS Finance was G/F – 4/F of the same Building; (ii) Alex Lee was also responsible for Happy Family and CSS Finance, who were money lenders; (iii) the cheques for interest payments were delivered to the address of CSS Finance; and (iv) companies within the CSS group had acknowledged receipt of the deliveries made by the courier.  It is said that the plaintiff had by associating himself with CSS Finance, a reputed local money lender, and by the use of a sophisticated system of money lending, held himself out as being in the money lending business.

78.  The weakness of the defendant's argument on holding out by the plaintiff is apparent.  The defendant's evidence as to where he discussed the loan with Alex Lee was self-contradictory.  Although he said in court that this was on the first floor, he said in his witness statement that it took place at Room 1001, which was the office of the plaintiff's father.  The evidence of Alex Lee, which I accept, is that this took place at the office of CSS Nominees.  Although the money lender licence stated the office of CSS Finance to be G/F – 4/F of CSS Building, the evidence of Alex Lee and the plaintiff is that it did not have a physical office in 1995 as it was not actively in business.  The fact that Alex Lee helped with the businesses of Happy Family and CSS Finance is neither here nor there.  It is not evidence of the plaintiff being associated with money lenders or held himself out to be so associated.  The suggestion that the cheques for interest payments were sent to CSS Finance is contrary to the evidence.  They were in fact sent to the office of CSS Nominees on the 1/F.  Although the receipts were invariable stamped with the chops of CSS Holdings or CSS Nominees, the plaintiff was never involved in it. The stamping was done either by Alex Lee or other staff.

79.  There is just nothing to show that the plaintiff had in any way, whether by words, deeds or conduct, held himself out as being associated with or in the business of money lending.  The alternative argument lacks factual support.

80.  For the above reasons, the defendant fails to prove that the plaintiff was a money lender within the meaning of MLO.  The provisions of section 7 and 23 of MLO are therefore not engaged.  It is thus not necessary to consider the application of the proviso of section23.

The Counterclaim

81.  The defendant's counterclaim in restitution is dependent on the defence of unlicensed money lender.  As a result of my holding that the defendant's defence is not made out, the counterclaim must also fail. 

Conclusion

82.  For the reasons and analysis set out above, the plaintiff is entitled to his claim.  Accordingly, there will be judgment for the plaintiff for: (1) the sum of $2,713,916.67 together with interest on the principal sum of $2,500,000 at contractual rate from the date of Writ to the date of judgment and thereafter at judgment rate until full payment; and (2) vacant possession of the Property with a 28 days' stay from the date of service of the sealed order.  The counterclaim is dismissed.  I also make an order nisi that the defendant pays the plaintiff the costs of the action, to be taxed if not agreed.