NEW TECHNOLOGY CABLE LTD. v. POPBRIDGE INDUSTRIAL LTD.

CACV 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 50 OF 2000

(ON APPEAL FROM HCA 7820/1999)

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J U D G M E N T

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Hon Godfrey VP :

1. This is an appeal from Yam J who, on 17 January 2000, allowed an appeal by the plaintiff against a refusal of the master to give summary judgment for the plaintiff under the provisions of Order 14 of the Rules of the High Court. The plaintiff's claim is for HK$1,037,495.42 (plus telegraphic transfer charges of $175), being money it claims it advanced on behalf of the defendant to discharge a debt of the defendant, the advance being made pursuant to an agreement in writing dated 9 April 1999 and made between the plaintiff and the defendant.

2. The defendant, in this court, has taken a number of points by way of challenge to the judgment below and says that it ought to be given unconditional leave to defend the action. I can identify these points as (1) the pleading point; (2) the agency point; (3) the want of authority point; and (4) the Money Lenders Ordinance point.

3. The plaintiff says there is no substance in any of these points and that it ought to have judgment for the principal sum and also interest; but, as to interest, there is a dispute between the parties in relation to the rate of interest and it was conceded for the plaintiff below that that dispute - to the extent that it relates to whether a contractual rate of interest was agreed - ought to go to trial.

The background

4. The background to these matters may be shortly stated as follows.

5. The defendant, being short of money, needed an advance to assist it to discharge a debt due to a third party. It has a relationship with another company, Perennial Investments (HK) Limited ("Perennial") and it expected that Perennial would advance moneys to it for that purpose. In fact, what happened was that one Victor Mon, a director of the defendant, appears to have been left to procure the advance which the defendant needed; but he did so by procuring it to be made by the plaintiff, rather than by Perennial. I have already referred in this connection to the agreement of 9 April 1999. This is in the form of a letter containing an offer of a term loan facility of $1,040,500. The letter is signed for and on behalf of the plaintiff by its General Manager and is countersigned, under the rubric "Agreed and Accepted by For and on behalf of Popbridge Industrial Limited", by one K.T. Lo described as its "Manufacturing Director".

6. I must mention in passing that there is some evidence (upon the admissibility of which I am doubtful) that the making of this agreement on the terms of the letter of 9 April 1999 was preceded by a meeting between the parties at which Victor Mon indicated that the advance would be made by Perennial; and there is some suggestion in the evidence that Mr Lo was not authorised by the defendant to agree and accept the loan on behalf of the defendant.

7. Reverting to the letter itself, it refers to the plaintiff as "the lender" and the defendant as "the borrower". The facility is described as a "Short term loan facility". No interest was required for the month of April 1999. The loan was to be made available by one lump sum upon acceptance of the offer by the defendant and the amount would be directly remitted to the third party I have mentioned. The loan was to mature on or before 30 April 1999 and was to be repaid by one lump sum on or before that maturity date. There was to be security for the loan in the form of a floating legal charge on all the sales proceeds of the defendant. The letter provided for a penalty interest rate in the following terms :-

"If the loan cannot be repaid on or before 30 April, 1999, interest will be charged to the Borrower at 5% per month."

8. The letter concluded as follows :-

"We trust the foregoing terms and conditions are acceptable to you. Please signify your acceptance by signing and returning the enclosed copy of this letter. A board resolution to approve this loan should be prepared after your signature of this letter."

9. There is some dispute as to whether there was any subsequent board resolution to that effect, but, in any event, the money was made available and was used for the purpose mentioned in the letter. The four points which I have identified as supporting the defendant's challenge to the judgment below are as follows and I shall deal with them in turn.

The pleading point

10. As to this, it is said that there was an admission by the defendant in its pleading in another action which supports the case of the plaintiff that the loan was to be made to it by the plaintiff and not by Perennial. But an admission in a pleading is not binding in a subsequent action : see British Thomson-Houston Co. v. British Insulated and Helsby Cables, Ltd [1924] 1 Ch. 203 at 210, at first instance, affirmed [1924] 2 Ch. 160, Court of Appeal. It is said that reference to this point is permissible not in order to treat what is said in the earlier pleading as a binding admission, but as evidence of a lack of bona fides on the part of the defendant. It may indeed be permissible to have reference to the pleading point for this purpose. But it does not of itself afford the defendant any defence at all.

The agency point

11. Here, it is said on behalf of the defendant that, having regard to the background which I have related, the plaintiff in making the advance must be treated as having done so as agent for Perennial, so that only Perennial and not the plaintiff is the defendant's creditor. The judge, dealing with this point, said this :-

"... it does not matter, even if New Technology Cable Limited was only acting as an agent of Perennial. An agent can always sue on the agreement when the agreement was made by the agent itself. In my view, the defendant in the action before me has no defence at all on the principal sum. The complicated arrangement between Perennial and the defendant company on the subscription agreement and all the issues argued between them, in my view is irrelevant to this simple loan agreement."

12. I agree with the judge. As it seems to me, the agreement for a loan made by the letter of 9 April 1999 is consistent only with the plaintiff acting as principal in making the loan, and that there is no justification at all for denying the plaintiff the right as to sue for the repayment of the money which indubitably it did advance for the benefit of the defendant. There is therefore, in my judgment, no substance in this point.

The want of authority point

13. Here, it is said that the defendant's board did not authorise Mr Lo to sign the loan agreement on its behalf. But the defendant has accepted the benefit of the advance of the money and there can, in my view, be no better act of ratification of what Mr Lo did than that, even it be the case that Mr Lo had originally no authority to countersign the letter so to bind the defendant. Accordingly, the want of authority point does not afford the defendant any defence to the action.

The Money Lenders Ordinance point

14. Here, it is said, as I read the defendant's pleading, that the agreement for the loan is unenforceable because the interest reserved by the agreement, of 5% per month, falls foul of the Money Lenders Ordinance, Cap. 163, section 14 of which, so far as is material, reads as follows :-

"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).

.....

(5) Nothing in this section shall apply to-

(a) a loan specified in paragraph 12 in Part 2 of Schedule 1;

....."

15. Thus exempted from the operation of section 24 are certain loans including those described as follows :-

"SCHEDULE 1

PART 2

EXEMPTED LOANS

12. (a) A loan made to a company that has a paid up share capital of not less than $1,00,000 or an equivalent amount in any other approved currency.

....."

On this aspect of the matter, the facts are that the rate of interest reserved by the letter of 9 April 1999 was 5% per month. This is an annual interest rate of 60%. It does not therefore exceed the limit of 60% mentioned in section 24. In any event, the evidence shows that the borrower here has a paid up share capital in excess of HK$1m, which makes the loan an exempted loan. In these circumstances, there is no substance in the Money Lenders Ordinance point either.

Conclusion

16. There being nothing in any of the four points, in the normal course of events, judgment would be given for the plaintiff for the principal and interest at the rate reserved by the letter of 9 April 1999. Yet, in the court below, it was conceded on behalf of the plaintiff, as I have said, that there was a triable issue as to the rate of interest which ought to be paid by the defendant to the plaintiff. In those circumstances, the judge gave leave to the defendant to defend as to the issue of the rate of interest, conditional upon a payment into court. I refer to what the judge said in his judgment about this :-

"The only issue before me, which the plaintiff has conceded is an issue to be tried, is the rate of interest. In the loan agreement it was stated the interest shall run from 1 May 1999 at 5 per cent per month. The defendant said this is an extortionate rate of interest which exceeds 60 per cent allowed by the Money Lenders Ordinance. The plaintiff considered that on this issue they would not ask for judgment at 5 per cent per annum but they are, in the end, if they fail, entitled to interest on the loan at judgment rate and if calculated from 1 April to date at judgment rate, they would be entitled to the sum of HK$85,576, and on that basis the defendant should pay the said sum into court as a condition to defend the remaining issue.

So the order I am making is: appeal allowed, judgment for the plaintiff against the defendant in the sum of 1,037,495.42. Leave granted to the defendant to defend the remaining issue of the rates of interest on the aforesaid principal sum on condition that the defendant shall pay into court the sum of $85,576 into court."

17. It seems to me that in the light of the concession made by the plaintiff below, the right course is for the defendant to have unconditional leave to defend the issue in relation to the rate of interest. It does not seem to me to be logical to make the order which the judge made. I would therefore affirm the order of the judge, save that I would give unconditional leave to the defendant to defend the issue as to the rate of interest.

18. We will, at the conclusion of our judgments, hear counsel further on what the exact form of our order should be.

Hon Keith JA :

19. I agree that this appeal should be dismissed, subject to the terms of the order relating to interest. I analyse the undisputed primary facts in this way. At the meeting of the Board of Directors of the Defendant on 8 April 1999, Victor Mon offered to procure the lending of $1m. to the Defendant to enable the Defendant to pay that sum to Coutant Lambda Ltd. ("Coutant") by way of part-payment of the sums which the Defendant owed Coutant. There is a dispute as to whether Mr Mon identified the company which would be making the loan, but even if Mr Mon offered to procure Perennial Investments (HK) Ltd ("Perennial") to make the loan to the Defendant, it was the letter dated 9 April 1999 from the Plaintiff to the Defendant which constituted the actual offer of the loan. That offer was made by the Plaintiff, and it amounted to an offer to lend the sum of $1,040,500.00 to the Defendant on the terms set out in that letter. That offer was accepted by the Defendant by one of its directors, K.T. Lo, countersigning the letter on behalf of the Defendant.

20. When analysed in that way, the supposed difficulty about the Plaintiff merely being the agent of Perennial, which was said to be the true lender of the money, disappears. No question of agency arises. It was the Plaintiff acting as principal who offered to make the loan to the Defendant.

21. In addition, the Defendant's Defence alleged that Mr Lo was not authorised by the Defendant to accept the Plaintiff's offer on its behalf. That defence in my view is equally unsustainable. The borrowing of $1m. had been authorised by the Board of Directors of the Defendant at the meeting on 8 April. It is true that the Plaintiff's letter constituted an offer by the Plaintiff to make the loan, and made it a term of the loan that interest should be payable from 30 April (if the loan had not been repaid by then) at the rate of 5% per month. Even if it be the case that the Board of Directors of the Defendant had not authorised Mr Lo to accept the loan on those terms, the fact is that in consequence of Mr Lo countersigning the letter of 9 April, the Plaintiff paid the sum of $1,040,500.00 to Coutant. At no time has the Defendant sought to disavow the loan by procuring that sum to be repaid to the Plaintiff. Thus, to the extent that Mr Lo had not been authorised to accept the Plaintiff's offer, the Defendant can in the circumstances be said to have ratified his acceptance of the offer.

22. Finally, I should add that I do not regard what Godfrey V-P has described as "the pleading point" as one of the Defendant's defences. The pleading point was simply one of the factors which the judge took into account in concluding that the Defendant had agreed to borrow the sum of $1,040,500.00 from the Plaintiff. I agree with Godfrey V-P that it was not appropriate for the judge to have taken into account an averment made on behalf of the Defendant in its Statement of Claim in another action.