LINK EXCELLENT LTD v. RUIJUN TECHNOLOGY LTD

HCA 1993/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1993 OF 2016

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D E C I S I O N

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Application

1.  Before the court is the plaintiff’s application, by summons issued on 27 April 2017 (“Summons”), for summary judgment against the defendant for HK$9,734,710 plus interest.

Plaintiff’s cause of action

2.  HK$9,734,710 represents the sum of (1) the principal of a loan of HK$6,000,000 (“Loan”) advanced by the plaintiff to the defendant on terms contained in or evidenced by a loan agreement dated 29 December 2014 (“Loan Agreement”) and (2) the outstanding interest on the Loan at 4.8% per month from 1 July 2015 up to 29 July 2016 (i.e. the date of the writ of summons herein).

3.  In so claiming, the plaintiff relies on the following express terms of the Loan Agreement:

(1)  that the Loan should be repaid in 3 months (clause 4.1); and

(2)  that interest should accrue on the Loan at 5% for the first month, which should be deducted from the Loan at the time of advance, and thereafter at 4.8% per month (clause 4.2).

4.  The defendant failed to repay the Loan.  The only payment that the defendant has so far made to the plaintiff are the following sums totalling HK$1,440,000:

Payment date	Amount
30 March 2015	HK$576,000
10 April 2015	HK$288,000
12 January 2016	HK$576,000
	HK$1,440,000

It is the plaintiff’s case these payments were made for settlement of interest on the Loan for the 5 months from 31 January to 30 June 2015, the interest from 31 December 2014 to 30 January 2015 having been deducted by the plaintiff from the Loan when it advanced the same to the defendant.

Grounds of defence

5.  The defendant does not admit either the making of the Loan Agreement or the advance of the Loan.  Although it admits making the 3 payments to the plaintiff mentioned in paragraph 4 above, the defendant does not admit they were payments for interest due.

6.  The only ground of defence raised by the defendant in the defence filed on 20 October 2016 is that pleaded in paragraph 5, which is that the Loan Agreement (even if proved) is unenforceable and the Loan and interest thereon are irrecoverable as the Loan was advanced by the plaintiff in the course of a money lending business without license or in any event in contravention of the Money Lenders Ordinance (Cap 163) (“MLO”).

7.  In the addition to the plaintiff’s lack of a money lender’s licence, the defendant also specifically complains in the affirmation of Lai Xiaokun, its deputy general managed, made on 28 July 2017 in opposition to the Summons that plaintiff contravened s 18 of the MLO in failing to provide the defendant with any note or memorandum of the Loan Agreement or summary of the provision of Parts III and IV of the MLO.

Relevant provisions of the MLO and their meanings

8.  To put the defendant’s ground of defence and the plaintiff’s reply thereto in context, s 23 of the MLO provides:

“Loan etc. not recoverable unless money lender licensed

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.” (emphasis added)

9.  Further, s 18(1) of the MLO stipulates:

“No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.”

10.  It can be seen that the requirements under s 23 for licensing as a money lender and under s 18 for a note or memorandum of the a loan agreement or a summary of the provision of Parts III and IV of the MLO only apply where money is advanced by a “money lender”.

11.  The expression “money lender” is defined in s 2(1) of the MLO to mean:

“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 anyway as carrying on that business, but does not include –

…

(b) as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan.”

12.  Insofar as it is material to this action, paragraph 5 of Part 2 of Schedule 1 to the MLO exempts a “loan made by a company or a firm or individual whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business.” (emphasis added)

Plaintiff’s reply

13.  In reply, the plaintiff denies the applicability of the MLO in that:

(1)   It is not, and was not at the material time, a money lender within the meaning of s 2(1).

(2)   The Loan Agreement fell within Part 2 of Schedule 1.

14.  In support, it is the plaintiff case that it is a wholly owned subsidiary of China Automotive Interior Decoration Holdings Ltd (“CAID”), a company listed on the Main Board of the Stock Exchange of Hong Kong Ltd (“HKSE”), and that its ordinary business is investment holding and/or holding shares of listed companies, which does not primarily or mainly involve the lending of money.

15.  Indeed, according to the 2^nd affirmation made by Mr Wong Ho Yin (“Mr Wong”), the plaintiff’s director, on 28 September 2017 in support of the Summons:

(1)   The making of the Loan Agreement and the advance of the Loan evolved from an approach by the defendant to the plaintiff with a view to enticing the plaintiff to invest in a PRC company engaged in the business of developing and selling energy-saving kitchen equipment and kitchen electrical appliances called Guangdong Aouder Technology Co Ltd (廣東澳特科技有限公司) (“Aouder”) which would, upon the completion of a corporate restructuring exercise called “Project Good Wish” and through the defendant (a Hong Kong company incorporated on 14 April 2014), become an indirect subsidiary of one China Xingrui Technology Holdings Limited (“China Xingrui”), a Cayman Islands exempted company incorporated on 12 March 2014. 

(2)   The goal of Project Good Wish was the listing of China Xingrui on HKSE’s Main Board through initial public offering.  The defendant’s place in the corporate structure under China Xingrui would be that of an indirect wholly owned subsidiary of China Xingrui through which China Xingrui would hold a 94.6936% interest in Aouder.

(3)   The negotiation was conducted between Mr Wong for the plaintiff on one side and one Mr Lai Shao Liang (賴少良) (“Mr Lai”), the defendant’s first director who also claimed to be the ultimate owner of Aouder, and one Mr Tian Wei (田煒) who introduced himself as the secretary of the board of directors of Aouder on the other.

(4)   Such approach by the defendant to the plaintiff culminated in the plaintiff agreeing to make an initial investment of RMB5,000,000 (“Subscription Price”) in Aouder by way of subscription of shares in China Xingrui. 

(5)   After such agreement by the plaintiff, Mr Lai requested the plaintiff to grant a loan in the amount of the plaintiff’s investment until the completion of the audit of Aouder’s accounts for the year ended 31 December 2014 which would take 3 months or less.  The purpose was said to be “[improving] the figures in Aouder’s books”.  After the audit was completed, the loan could be used to pay the Subscription Price for shares in China Xingrui.  The plaintiff agreed.

(6)   The amount of the Loan, i.e. HK$6,000,000, was converted from the amount of the Subscription Price (i.e. RMB5,000,000) at the exchange rate of RMB1:HK$1.2.

(7)   Monthly interest rates were adopted because the Loan was meant to be short-term.  The rates of 5% and 4.8% were discounted from the prevailing rate of 6% per month prevailing for unsecured private loans in the PRC at the defendant’s request.

(8)   The defendant was put forward as the borrower by Mr Lai because it had a bank account in Hong Kong, whereas Aouder did not.

(9)   Some of the collaterals required under the Loan Agreement were actually never provided.

Issue

16.  Despite the defendant’s non-admission, I am satisfied as to the making of the Loan Agreement and the advance of the Loan, which facts are evidenced by the production of the Loan Agreement and the bank transfer advice dated 30 December 2014 in respect of the transfer of HK$5,700,000 (net of the interest for the first month at 5%) by the plaintiff through one Joystar International Investment Limited to the defendant.

17.  Further, although the defendant does not admit that the 3 payments to the plaintiff mentioned in paragraph 4 above were payments for interest due, they were either HK$288,000 (which is exactly the amount of interest due for one month at 4.8% per month) or HK$576,000 (which is exactly the amount of interest due for two months at 4.8% per month).

18.  As I see it, whether the plaintiff is entitled to summary judgment depends solely on whether there is a triable issue as to whether the plaintiff was carrying on business as a money-lender at the time when it advanced the Loan to the defendant under the Loan Agreement.

Principles governing grant or refusal of summary judgment

19.  I summarised the relevant principles governing the grant or refusal of summary judgment under Order 14 that I derived from the authorities in Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259 at [61] as follows:

“It is for the defendant to show that there is an arguable defence or triable issue. In doing so, the defendant must condescend to particulars. The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend. The defendant must satisfy the court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence. In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the court must look at the whole situation. In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit evidence, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate. If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so. If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence. See e.g. National Westminster Bank plc v Daniel [1993] 1 WLR 1453, per Glidewell J at 1457; Manciple Ltd v Char On Man [1995] 3 HKC 459 (CA), per Mortimer JA at 466E-G; Re Safe Rich Industries Ltd, CACV 81/94, unreported, per Bokhary JA at page 5; Microsoft Corporation v Electro-Wide Ltd [1997] FSR 580, per Laddie J at 593; DMT Finance Ltd v Ming Kee Investments Ltd, HCCL 11/1998, unreported, per Stone J at page 4 and Paul Y Management Ltd v Eternal Unity Development Ltd, CACV 16/2008, unreported, per Cheung JA at §19.”

Discussion

Case law on definition of “money lender”

20.  In view of the evidence before the court, it is unnecessary to go into the case law on the meaning of “money lender” in any detail.  It is sufficient to note that:

(1)   The carrying on of a “business” requires a degree of repetition, system and continuity.  Accordingly, a single loan, or even several isolated loans, is generally insufficient to cause a lender to be treated as a “money lender” within s 2(1) of the MLO.

(2)   The business required is one of money lending as such, and not some other business to which the lending of money is merely incidental.

21.  In support, in Litchfield v Dreyfus [1906] 1 KB 584, the plaintiff carried on business as an expert art valuer and adviser.  He also assisted two art businesses in which he was largely interested by discounting for them their customers’ bills and by taking bills for the interest from time to time due on the debentures he held in one of those businesses.  He also assisted some old friends in the curios trade and ten or so persons with whom he had been connected in business with loans and by discounting bills for them.  He did not advertise as a money lender and did not discount bills for any outsiders.  He sued on three bills given to him for a loan made by him to an old friend.  The action was defended on, inter alia, the ground that the plaintiff was a money lender but was not registered as such.  It was held that the plaintiff was not a money lender as defined in s 6 of the English Money-lenders Act 1900 (“Act”), which definition is similar to the said definition of “money lender” in s 2(1) of the MLO.

22.  Farwell J (as he then was) held at 589-590 that generally speaking, one carries on a money-lending business if he is “ready and willing to lend to all and sundry, provided that they are from his point of view eligible” and that the Act “was intended to apply only to persons who are really carrying on the business of money-lending as a business, not to persons who lend money as an incident of another business or to a few old friends by way of friendship”.

Evidence before court

23.  According to the defendant, it had no business dealing with the plaintiff other than the Loan Agreement.  The defendant has not adduced evidence of any other loan by the plaintiff (whether to the defendant or others), not to mention any matter that indicates any degree of repetition, system or continuity to money lending transactions involving the plaintiff.

24.  The only bases upon which the defendant suggests that the plaintiff was carrying on the business of money lending are:

(1)   its “understanding and impression that the Plaintiff had been offering loans to other parties in its ordinary course of business”; and

(2)   the inference that the defendant says can be drawn from the Loan Agreement.

25.  With regard to the former, the defendant’s said understanding and impression is said to have arisen from the fact that in around mid-December 2014 the officers of the defendant spread words around that it was in need of HK$6,000,000 and that one Mr Qin Kebo introduced the plaintiff as someone who could arrange a loan for the defendant.  That is to say, the defendant is inferring that the plaintiff was carrying on business as a money lender from the mere fact that the plaintiff lent to the defendant once.  This is clearly insufficient.  Further, for the reasons to be stated in paragraphs 30 to 32 below, I find the defendant’s evidence as to the circumstances leading to the making of the Loan Agreement and the advance of the Loan (including why the parties got in touch in the first place) to be incredible.

26.  As for the Loan Agreement, the defendant contends that the following points towards a “highly commercial and business like arrangement for a loan”: that the Loan Agreement was drafted in a “highly comprehensive and commercial manner in fairly professional terms”; that the amount of the Loan is sizable which is unlikely to be undertaken by an ordinary lender not in the business of money lending; that collaterals (being personal guarantees and a post-dated cheque in the amount of the Loan) were required; that the averaged annual interest rate of 57.5% is “unusually high” and “unlikely to appear in arrangements with normal lenders not in the business of money lending” and happened to just avoid being caught by the illegal interest rate of 60% per annum under the MLO.

27.  Being business-like towards a loan, though a relevant factor in deciding whether the lender was carrying on a money lending business, is not the same as carrying on a business of making loans.  Nor does it follow from the fact that money is lent at remunerative rate and with proper security that the lender is in the business of making loans.  See Chow Wun Sing Winston v Yiu Chun Luk, CACV 295/2006, unreported, 20 February 2008 at [18], [21]-[22], per Tang VP (as he then was) giving reasons for the judgment of the court.

28.  The defendant’s second reason for suggesting that the plaintiff was a money lender is therefore very tenuous to begin with.  More importantly, as in the case of the first reason based on the defendant’s “understanding and impression”, it is refuted by the evidence adduced by the plaintiff which proves first that the ordinary business of the plaintiff was at all material times that of investment holding and second that the Loan Agreement was an isolated loan transaction entered into by the plaintiff in the course of its investment holding business.

29.  First, with regard to the nature of the plaintiff’s business:

(1)  The annual reports of CAID for the years from 2011 to 2016 invariably describe that the plaintiff’s principal activity as that of “investment holding”.  In other words, the plaintiff’s ordinary business, from its incorporation on 2 June 2011 to the date of the Loan Agreement and beyond, has always been investment holding, not lending.

(2)  Various public announcements issued by CAID and produced by the plaintiff show that the plaintiff has regularly acquired shares of other companies for investment purposes:

(a)  On 16 March 2012, the plaintiff entered into a memorandum of understanding for the intended purchase of the entire share capital of Accord Sky Limited, which ran a baby carriage business.

(b)  On 15 May 2013, the plaintiff agreed to purchase the entire share capital of Brilliant Summit Limited, which carried on a garment accessories business.

(c)  On 8 September 2016, the plaintiff applied to subscribe for 120,000,000 shares in Lerado Financial Group Company Limited, a listed company that engaged in various businesses.

30.  Second, on how the Loan Agreement came about, I refer to the plaintiff’s case as summarised in paragraph 15 above.  Such case is supported by the documents exhibited as WHY-18 to WHY-26 to Mr Wong’s 2^nd affirmation, which documents could not have emanated from any source other than Mr Lai and which evidence the corporate restructuring exercise for which the defendant sought investment from the plaintiff, including the 2^nd draft dated 26 March 2014 of a document entitled “Project [如意] 重組方案备忘录 ” and various documents pertaining to the companies within the corporate structure provided for in the said draft memorandum. 

31.  This part of the plaintiff’s case and evidence has been left completely unanswered by the defendant.  I have not overlooked the fact that, by a consent summons dated 26 May 2017, the parties agreed that there should be no further affirmation without leave of the court after the plaintiff’s affirmation in reply.  However, given the contents of Mr Wong’s 2^nd affirmation and the weight that it is likely to be given if uncontroverted, one would expect a defendant who has an answer to seek the court’s leave to adduce further affirmation evidence.

32.  I therefore see no reason why I should not accept the plaintiff’s evidence as to the circumstances leading to the making of the Loan Agreement and the advance of the Loan, which renders the defendant’s evidence on why the parties got in touch in the first place incredible.

33.  The only conclusions that one can draw from such evidence are (1) that the plaintiff’s ordinary business at the material time did not primarily or mainly involve the lending of money; (2) that the plaintiff was not at the material time a money lender within the meaning of the definition in s 2(1) of the MLO; and (3) that the Loan fell within paragraph 5 of Part 2 of Schedule 1 to the MLO. 

34.  It follows that ss 18 and 23 of the MLO are inapplicable.

35.  In the premises, the defence that the Loan Agreement was made and the Loan was advanced in breach of ss 18 or 23 of the MLO is not arguable or triable.

Order

36.  For the reasons stated above, the plaintiff is entitled to summary judgment against the defendant in the sum of HK$9,734,710 with interest at 4.8% per month from 30 July 2016 to the date of judgment and thereafter at judgment rate until payment.

37.  I also make an order nisi that the defendant shall pay the plaintiff the costs of this action including the costs of and occasioned by the Summons on a party and party basis with certificate for counsel for the hearing on 31 October 2017, to be taxed if not agreed.