SUN LAI LA AND ANOTHER v. SIMHAN INTERNATIONAL LTD. AND OTHERS

HCA4537/94

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4537 OF 1994

----------------

(By Original Action)

----------------

-------------------

J U D G M E N T

-------------------

The Background and the Parties

1. In 1993, the 1st Plaintiff was the owner of Flat B on the 3/F of Tung Shan Villa, No.2 Tung Shan Terrace, as well as a car port and a portion of the flat roof ("the residential property"). She was also the beneficial owner of all the issued shares in the 2nd Plaintiff.

2. The 2nd Plaintiff owned a property described in the papers as Office 3 on the 2/F of Kai Wong Commercial Building, Nos.222-226, Queen's Road, Central ("the office property"). These two properties were put up as security for two loans of, respectively, $2m and $800,000. The issue or one of the issues before me is who was the lender of these sums. The Plaintiffs say it was the 2nd Defendant, a registered money lender and the 2nd and 3rd Defendants say it was the 3rd Defendant, formerly an employee within the group of which the 2nd Defendant forms part and referred to in these proceedings as the Get Nice Group. Depending on my finding as to who the lender was, there are issues as to the operation of various provisions of the Money Lenders Ordinance, Cap.163 of the Laws of Hong Kong.

3. There are a number of other parties involved. At this stage, I need only introduce the more important of them. A Mr Noel Ng Kwai Tung ("Noel Ng") was a director of the 1st Defendant. A Mr Ng Ting Cheung ("T.C. Ng") was also a director and shareholder of the 1st Defendant. The 1st Defendant owned a company in China, named Head Trend Industrial Area Limited (Shenzhen) Ltd. ("Head Trend Shenzhen"). Head Trend Shenzhen owned a piece of land in Fuk Wing Commune in China.

4. T.C. Ng is an important link in these proceedings. He had met the 1st Plaintiff in 1988 when she was working as an estate agent and he had engaged her services.

5. The 2nd Plaintiff was originally a T.C. Ng company which he passed on to the 1st Plaintiff in 1992 to enable her to use it to purchase the office property. He also acted as the 1st Plaintiff's guarantor in connection with her application for mortgage finance in respect of both the office and residential properties.

6. T.C. Ng's link to Noel Ng, for the purposes of these proceedings, came about in or about September 1992 when the shares in Head Trend Shenzhen were sold to a company owned by Noel Ng and his associates for $8m. T.C. Ng was asked to stay on as Chairman of Head Trend Shenzhen because of his Chinese connections. The 1st Defendant was the vehicle used to take over Head Trend Shenzhen and T.C. Ng was given a 1% shareholding of the 1st Defendant, which amounted to 100 shares. This is T.C. Ng's version on which Mr Fung, for the 2nd and 3rd Defendants, mounted a thorough and searching challenge. More about that later.

7. The 2nd Defendant is a finance company. It is part of what has been referred to in these proceedings as the Get Nice Group. A Mr Anthony Cham ("Mr Cham") is a director of the 2nd Defendant. On his business card, he is described as the managing director, probably of the 2nd Defendant but also possibly of the Get Nice Group.

8. The 3rd Defendant is a friend of Mr Cham. At the material times in question, he was the Assistant Manager of Get Nice Bullion and Forex Company, a member of the Get Nice Group. He now runs a restaurant in Taipei.

9. Both the 2nd and 3rd Defendants are represented before me by Mr Patrick Fung, S.C. and Mr B.K. Ho. The Plaintiffs are both represented by Mr Walter Lau.

The Proceedings

10. The Plaintiffs had initially sued all three Defendants for a number of reliefs, including declarations that Sale and Purchase Agreements in respect of the office and residential properties put up as security for the two loans totalling $2.8m were sham and void. These proceedings were begun in 1994. I shall go into more of the detailed dispute over these loans and the security hereafter.

11. In 1996, both Plaintiffs obtained judgment against the 1st Defendant and the terms of that judgment are before me. Briefly, the 1st Defendant was ordered to pay $300,000 plus interest to the 1st Plaintiff and to pay $995,000 plus interest to the 2nd Plaintiff. There were other consequential orders. This judgment was unsatisfied and the 1st Defendant has gone into liquidation. It has taken no part in this trial.

12. I should also mention that during the course of the hearing, Mr Lau applied to re-amend his Statement of Claim. After supplying further and better particulars in respect of the amendments, I granted leave for Mr Lau to have his amendments.

The witnesses in these proceedings

13. Both the 1st Plaintiff and T.C. Ng gave oral evidence before me. Their witness statements were also before me. They were both subject to a careful and probing cross-examination by Mr Fung.

14. While their evidence was occasionally subject to lapses, in particular when T.C. Ng was asked about his bankruptcy and events and dealings in relation to it, in respect of the issues that I regard as relevant in these proceedings, namely, the loan transactions and the parties thereto, to which I will return, I consider that their evidence was credible and acceptable. Insofar as there was conflict between their evidence and that of the 3rd Defendant, I much prefer their versions of events.

15. The 3rd Defendant also provided a witness statement and gave oral evidence. I regret to say that he was singularly unimpressive and possessed of a very selective and convenient memory. In relation to crucial issues, such as his acquaintance with the 1st Plaintiff and T.C. Ng and his role in the loan transactions, I find that he was simply not telling the truth. I have no hesitation in rejecting his version of events to do with the loans, who made them and his previous acquaintance and conversations leading up to the Sale and Purchase Agreements made with the Plaintiffs.

16. Mr Cham also filed a witness statement.

17. On the eve of the trial, the Thursday afternoon before the Monday start, a medical certificate was sent to the Plaintiffs about Mr Cham's unfitness to appear. On the morning of Day One of the hearing, Mr Lau expressed concern over the lateness of the notification and sought to challenge the fact of unfitness which Mr Fung had relied on to seek to put in Mr Cham's witness statement under the hearsay provisions of the Evidence Ordinance.

18. After hearing submissions, I was prepared to grant an adjournment of the trial to enable Mr Lau to conduct the necessary investigation, at which point Mr Fung indicated that he was prepared for the trial to go ahead, without relying on Mr Cham's evidence.

19. A number of other parties are referred to as having been present at various meetings, including some fairly crucial ones, namely solicitors engaged by the 2nd and 3rd Defendants, solicitors' clerks and secretaries and at least one other secretary in the Get Nice Group, a Miss Janet Chan.

20. None of them were called as witnesses in these proceedings. I would mention that the only other information I have had about Mr Cham is that the 3rd Defendant saw him at his office about a week ago.

The Events leading up to the transactions in question

21. The evidence about what took place on behalf of the Plaintiff comes from T.C. Ng and the 1st Plaintiff. They were both cross-examined with care by Mr Fung. As I am said earlier, while T.C. Ng may not have been fully frank or convincing in his evidence in certain respects, I am satisfied that his evidence in respect of the material events in these proceedings are true and accurate. I am also satisfied that the 1st Plaintiff's evidence was truthful, careful and reliable and this despite Mr Fung's detailed questioning. The effect of their evidence can be summarized as follows.

22. The 1st Plaintiff and T.C. Ng had been friendly for some time. They have had financial dealings of one kind or another. Both of them also had financial dealings with Noel Ng, particularly in relation to a project in Shenzhen held by Head Trend Shenzhen, which the 1st Defendant took over from Head Trend Development Ltd., a company in which T.C. Ng and some of his brothers and others were interested. The 1st Defendant had to pay $8m for the privilege, and occasionally complicated financial dealings took place amongst these parties. They have little direct relevance to the issues I have to consider, but I have taken the evidence fully into account in assessing the general credibility both of T.C. Ng and the 1st Plaintiff.

23. Anyway, in or about late March or early April 1993, T.C. Ng approached the 1st Plaintiff and informed her that the 1st Defendant required two loans of about $800,000 and $2m on a short term basis. This had to do with the Agricultural Bank in China, from which the 1st Defendant had arranged finance, tightening its lending policy. T.C. Ng told the 1st Plaintiff that the loan would be repaid shortly as soon as the difficulty with the Agricultural Bank in China was sorted out. He further said that the 1st Defendant's majority shareholder, Noel Ng, would make the necessary arrangements with a finance company to obtain the loans, but the 1st Defendant was not able to provide the necessary security as the land owned by the 1st Defendant was in China and was not acceptable to the finance company. He asked her to allow her office and residential properties to be put up as security. Since T.C. Ng had done her a favour by acting as her guarantor in respect of the two properties, she felt she had to return the favour. As she knew nothing about the 1st Defendant, and was concerned about its ability to repay the intended loan, T.C. Ng took her to see Noel Ng in mid April 1993 at the 1st Defendant's office at Room E, 17/F, China Overseas Building, 139 Hennessy Road, Wanchai. At this meeting, Noel Ng showed her documents from which she obtained the necessary degree of assurance.

24. Noel Ng also guaranteed to the 1st Plaintiff that the loans which he had arranged with the finance company would be repaid within six months and that the 1st Defendant would be responsible for paying the monthly interest and all expenses relating to the loan. With these assurance from Noel Ng, the 1st Plaintiff agreed to put up her two properties as security.

25. Neither T.C. Ng nor the 1st Plaintiff took any part in arranging the loans which were arranged by Noel Ng.

26. In the afternoon of 27th April 1993, T.C. Ng was informed by Noel Ng that arrangements had been made with a finance company to sign the documents for obtaining a loan of $800,000. T.C. Ng then spoke to a Ng Mau Cheong, another director of the 1st Defendant, as a result of which T.C. Ng understood that the loan was for nine months with interest at 3% per month. He was also told that he had to go to the office of the 2nd Defendant at Eurotrade Centre, 13-14 Connaught Road, Central the next day and ask for a Miss Janet Chan and to sign the loan documents and to bring along cheques of the 2nd Plaintiff for the monthly interest payments and principal loan repayment for the finance company.

27. On 28th April 1993, T.C. Ng went with the 1st Plaintiff to the office of the 2nd Defendant at Eurotrade Centre. They were received by Janet Chan, whom neither had met before. She showed T.C. Ng into a room where three persons were already inside. The 1st Plaintiff stayed outside at the reception area. Janet Chan introduced T.C. Ng to one of them as Mr Kwan, a solicitor, and to Mr Cham, whom she introduced as her boss.

28. The 3rd man in the room turned out to be the 3rd Defendant. He was a complete stranger at the time to T.C. Ng and the 1st Plaintiff. He was introduced to T.C. Ng as Mr Kwong. Neither T.C. Ng nor the 1st Plaintiff has had any dealings or communications or negotiations with the 3rd Defendant prior to T.C. Ng meeting him on this occasion, and neither the 1st nor 2nd Plaintiff arranged to borrow any money from him. The 3rd Defendant's evidence to the contrary I reject.

29. To continue with the narrative, Mr Kwan then showed T.C. Ng a document and asked him to sign where indicated. He explained to T.C. Ng that the transaction was a loan to be secured by the office property and structured by way of a Sale and Purchase Agreement. In the presence of Mr Cham, Mr Kwan told T.C. Ng that this was done for the protection of the 2nd Defendant. He further said that if the 2nd Defendant does not receive repayment of the principal when it became due, it could then obtain the office property right away. Mr Kwan also said that the purchase price was fixed at lower than the market price to provide some pressure on the borrower to repay the loan to redeem the property. He also explained that there was a specific provision in the agreement that once repayment was made, the agreement would be cancelled. He explained that both parties would thus be protected. He said that if the transaction was not done by way of a Sale and Purchase Agreement of the office property, the finance company would not be so ready to grant such a large loan. Throughout this conversation, Mr Cham was present and indicated his agreement with what was said by Mr Kwan. T.C. Ng then signed. Mr Kwan asked him for the cheques for the monthly interest payments and repayment of principal and told him to hand them to Mr Cham. T.C. Ng handed to Mr Cham a number of cheques of $24,000 each drawn on the bank account of the 2nd Defendant with the Nanyang Commercial Bank Ltd. and another cheque for $800,000 also drawn on that account of the 2nd Defendant. All these cheques were post-dated. The names of the payees were left blank. Mr Cham then provided T.C. Ng a cheque for $800,000.

30. Throughout this meeting, the 3rd Defendant said nothing. T.C. Ng did not know why the 3rd Defendant was present.

31. When T.C. Ng came out of the room and told the 1st Plaintiff all the formalities had been completed, she did not know what documents he had signed and she did not ask. They then left the 2nd Defendant's office.

32. The 1st Plaintiff's evidence is that up to this time, she had not, whether personally or in her capacity as a director of the 2nd Plaintiff, requested any loan of $800,000 from any person. She had not agreed or authorised any person to enter into any agreement to sell the office property. She did not know and had never met, spoken to or negotiated with the 3rd Defendant. She had never requested any loan from him, nor had she been told by any person that a loan of $800,000 would be obtained from him. So far as she was concerned, the loan was obtained from a finance company, the 2nd Defendant.

33. She had also, up to 28th April 1993, either in her personal capacity or as a director of the 2nd Plaintiff, never instructed Messrs Liu, Chan and Lam, solicitors to act for the 2nd Plaintiff.

34. T.C. Ng banked the cheque for $800,000 into the 2nd Plaintiff's account the same day and reported to Noel Ng upon returning to the 2nd Plaintiff's office. Noel Ng then asked T.C. Ng to write him a cheque drawn on the 2nd Plaintiff's account for $800,000 with the name of the payee left blank. This T.C. Ng did.

35. On 1st May 1993, Noel Ng told T.C. Ng that the loan for $800,000 had been finalized and told him to go to the office of Messrs Liu, Chan and Lam to pay the bill, which he did. The bill was for $1,500.

36. On 10th May 1993, Noel Ng told T.C. Ng that the loan documents for the $2m loan, to be secured by the residential property, was available for signing the next day at the offices of Messrs Liu, Chan and Lam. He told T.C. Ng to inform the 1st Plaintiff to attend the solicitors' office. He said he would go along with them. He also told T.C. Ng to obtain the 1st Plaintiff's cheques for repayment of the monthly interest and principal. T.C. Ng eventually provided his own cheques for the monthly interest repayments.

37. On the afternoon of 10th May, or the morning of 11th May 1993, the 1st Plaintiff was informed by T.C. Ng to attend the offices of Messrs Liu, Chan and Lam to attend to the formalities. She supplied a post-dated cheque for $2m as she was told by T.C. Ng that it was required by the finance company.

38. On 11th May 1993, T.C. Ng, Noel Ng and the 1st Plaintiff attended the offices of Messrs Liu, Chan and Lam. Upon arrival, Noel Ng waited at the reception area for a short while and then left. The 1st Plaintiff and T.C. Ng were shown into the room of Mr Kwan, the solicitor. Shortly thereafter a Miss Anny Wong of Messrs Oswald Wong & Heung solicitors, arrived and produced a document for the 1st Plaintiff to sign. After looking at the document, the 1st Plaintiff asked why she had to sign a Sale and Purchase Agreement of the residential property. In reply, Miss Wong said she was aware that the transaction was a money lending transaction and that Mr Kwan had already explained the position to T.C. Ng previously. This was so and T.C. Ng did not indicate dissent.

39. Miss Wong further told the 1st Plaintiff that the lender had no intention to purchase her property. She said that the agreement specifically made provision for cancellation of the agreement once the sum of $2m was repaid. She remarked that the 1st Plaintiff's only worry should be whether the finance company would be repaid when the repayment of the loan was due. It was then late in the afternoon. Upon Miss Wong's assurance that the transaction was really a loan, the 1st Plaintiff reluctantly signed the agreement. As previously mentioned, she drew her cheque for $2m and T.C. Ng provided his cheques for repayment of the monthly interest. All the cheques were handed to Miss Wong with the names of the payees left blank.

40. Miss Wong was a clerk of Messrs Oswald Wong & Heung. She said she was acting for the 1st Plaintiff in the transaction. The 1st Plaintiff did not instruct that firm to act for her.

41. The 1st Plaintiff received a Liu Chong Hing Bank cheque for $1,851,340 being the balance after deducting various expenses from the $2m loan. She also received a breakdown of the expenses showing how that sum was arrived at. She makes a claim for those expenses against the 2nd Defendant pursuant to s.27(4) of the Money Lenders Ordinance. I note that the 2nd Plaintiff also makes a similar claim in respect of $3,000 it paid to Messrs Liu, Chan and Lam.

42. The 1st Plaintiff banked the Liu Chong Hing cheque into an account opened with that Bank specifically for the purpose. On the instructions of T.C. Ng, she remitted a sum of $1,840,000 to Head Trend Development's bank account with the Agricultural Bank in Shenzhen.

43. Between May and July 1993, the interest payments regarding the two loans were made and the 1st Plaintiff was not troubled. Thereafter, things began to go wrong. I need not go into the details, but the interest payments were not kept up and ultimately, both T.C. Ng and Noel Ng were adjudicated bankrupt and the 1st Defendant was wound up.

44. The details can be found in the witness statements of T.C. Ng and the 1st Plaintiff. These were not matters seriously challenged nor are they of much materiality to the issues I have to consider.

45. The next event which has some materiality took place on or about 20th November 1993, when the 1st Plaintiff received a call from someone who identified himself as Mr Cham of the 2nd Defendant. He requested her to go to his office for a discussion. When she arrived and saw Mr Cham, he told her that her cheques, subsequently provided in place of T.C. Ng's cheques for interest repayments on the $2m loan, had bounced. He also told her that the loan was due for payment and he would tell his solicitors to issue a letter to Messrs Oswald Wong & Heung to demand completion of the sale of the residential property if she did not repay the loan.

46. Negotiations then took place between the 1st Plaintiff and Mr Cham which led to two Supplemental Agreements extending the date of repayment of the $2m loan on condition that the $800,000 was repaid. This was done. Messrs Oswald Wong & Heung prepared the Supplemental Agreements. Instructions to them did not come from the 1st Plaintiff. The 3rd Defendant claimed that he had some role to play in these discussions. I doubt it very much, but I do not rule it out completely.

47. In relation to the interest on the $800,000 loan, the 1st Plaintiff had drawn a cheque for $36,000 and handed it to Mr Cham. This was supposed to cover one and a half months' interest for December and January. However, since she had made a substantial repayment about $300,000 on 31st December 1993, she took the view that she should not have to pay interest for January 1993. So she countermanded the cheque and instead paid the 2nd Defendant $24,000 in cash to cover interest up to the end of December 1993.

48. There is no dispute that in respect of both loans of $800,000 and $2m, the Plaintiffs were not provided with any note or memorandum in writing referred to in s.18(2) of the Money Lenders Ordinance nor was any such document signed by the 1st Plaintiff. Similarly, no statement in writing signed by or on behalf of the 2nd Defendant showing the total sum payable under the loan agreement or the various amounts comprised in that total sum with the dates when each sum became due was provided by the 2nd Defendant or any person to the 1st Plaintiff.

The 3rd Defendant's version

49. The 3rd Defendant's version of events is that he was friendly with Janet Chan, who was related to Noel Ng, whom he had met through Janet Chan. Janet Chan and Noel Ng asked him if he could help in raising a loan of $2.8m for their friends. He was eventually willing to assist by persuading the 2nd Defendant to arrange finance for these friends whom he had not met prior to that meeting. When first asked, the 3rd Defendant did not say yes immediately. He considered the suggestion, then met with their friends, namely, the 1st Plaintiff and T.C. Ng, and discussed the terms in detail with them and eventually agreed to borrow personally from the 2nd Defendant after approaching Mr Cham.

50. The crux of the 3rd Defendant's evidence is contained in certain paragraphs in his witness statement which he confirmed in oral testimony. In para.8 of his statement, he says that :

"I wish to emphasize that both the 1st Plaintiff and Mr Ng Ting Cheung of the 2nd Plaintiff at all material times knew very well that I had no sufficient fund myself and had to borrow money from the 2nd Defendant in order to lend the said sum to the Plaintiffs and derived no benefit whatsoever from the transaction and I was assured by both the 1st Plaintiff and Mr Ng Ting Cheung that no harm or loss would be caused to me by helping them. Both of them expressly agreed with me that (i) the 1st and 2nd Plaintiffs would keep and save me against any loss or harm as a result of the said Agreement and would indemnify me against any loss or damage as a result of the same; (ii) that post-dated cheques would be provided to me for repayment of the principal and interest failing which I would be entitled to enforce the 1st Security and/or the 2nd Security; (iii) that in order to provide further protection to myself, the 1st and 2nd Plaintiffs shall respectively execute sale and purchase agreements in favour of myself as the Purchaser in respect of the 1st Security and the 2nd Security respectively to enable me to register the same with the Land Registry as a lis pendens against the said properties provided that the 1st and 2nd Plaintiffs have an option to cancel the same upon repayment of the said loans and they respectively were to be responsible for all stamp duties, costs and disbursements arising from or incurred in the preparation of the said sale and purchase agreements."

The 1st and 2nd Security refer, of course, to the office and residential properties.

51. In para.12 of the 3rd Defendant's statement, he says :

"I assisted the Plaintiffs in raising the said loans by borrowing from the 2nd Defendant through the assistance of Mr Cham, in the total sum of $2.8m at the rate of 3% per month until repayment."

And in paras.15 and 16 of his statement, the 3rd Defendant says :

"The circumstances and repayment of interest on the said loan of $2m were as referred to above, but the 1st Plaintiff requested me not to present the post-dated cheque for repayment of the principal of $2m on 11th November 1993. Pursuant to the 1st Plaintiff's request, extension of time to repay the 2nd Defendant was made.

Upon the further request of the 1st Plaintiff, I was further asked not to present the post-dated cheque for repayment of the principal of $2m on the extended date 15th January 1994 and as a result of the said further request, I requested the 2nd Defendant to further extend time for me to repay the $2m."

52. The 3rd Defendant claims to have been the borrower from the 2nd Defendant to whom he has to date not made repayment. The 2nd Defendant has apparently not made any demands for him to repay that sum.

53. I regret to say that I am convinced that the 3rd Defendant did not meet or communicate with either the 1st Plaintiff or T.C. Ng, save very briefly with T.C. Ng on 28th April 1993, prior to that date. I also find that the paragraphs I have just read from his statement, and his oral testimony, contained embellishments, exaggerations and untruths. It is clear to me that the 2nd Defendant was the only lender to the Plaintiffs and the 3rd Defendants only role in the transaction was to lend his name as purchaser to the two Sale and Purchase Agreements. I do not rule out the possibility that he may have been present on some occasions later on in 1993, and perhaps early in 1994 when the 1st Plaintiff had conversations with Mr Cham about the Supplemental Agreements.

54. I should also note that I also have the gravest doubts as to his wherewithal to purchase the two properties. He accepted that his monthly income in 1993 was about $20,000 per month. On his calculation, if he could borrow 70% from a bank, he would have needed to make a down-payment of $2.1m and to make monthly mortgage repayments on the remaining $3.5m. The 3rd Defendant said he never thought about this at the time because he thought that the Plaintiffs would be able to repay, and if they could not, then perhaps his friend could buy the properties. He also referred to his own purchase in June 1993 of a flat in Tai Koo Shing for $3.95m for which he had to make a down-payment of 30% and monthly instalments of some $20,000.

55. In my judgment, he would have had the most severe difficulties with the much higher down payment and monthly repayments if he had to, or if he were to, purchase the two properties. I am not satisfied on the evidence he adduced that he would have been able to do so.

56. Mr Lau for the Plaintiff has drawn my attention to other pieces of evidence suggesting that it is highly unlikely that the Plaintiffs were contracting with the 3rd Defendant. I need not set them out. It is clear from the evidence of the 1st Plaintiff to which I have already referred and in substance not contradicted, particularly where she was referring to her communications with Mr Cham, that she and the 2nd Plaintiff had and could only have, obtained the loans from the 2nd Defendant which was a money lender and not from the 3rd Defendant whose so-called loan from the 2nd Defendant is still outstanding and no action has been taken by the 2nd Defendant to recover the outstanding sum from him.

The Discretion under Section 18(3) of the Money Lenders Ordinance, Cap.163

57. Which leads me on to the next question, which is whether I should nonetheless exercise my discretion under s.18(3) of the Money Lenders Ordinance, Cap. 163 and declare the Sale and Purchase Agreement and the security of the residential property enforceable.

58. Section 18 provides in subsection (1) that 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 in the absence of the memorandum called for under that subsection.

59. Subsection (2) provides that the memorandum shall contain all the terms of the agreement, particularly those set out in items (a) to (j) of that subsection.

60. Subsection (3) provides :

" Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable."

61. While I am looking at the Ordinance, it is probably convenient for me to refer to s.27 which provides :

"(1) Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower on 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.

(3) Subject to s.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. And crucially,

(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 let (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."

62. The scope of the discretion exercisable by the Court under s.18(3) has been considered in a number of authorities in Hong Kong. Taking them chronologically, the first authority I go to is the judgment of Deputy Judge Nazareth, (as he then was) in Lee Wang Investment Co. Ltd. v. Leung Boon Sing, HCA No.14024 of 1983, the written judgment of which was handed down on 14th January 1985. The facts are not material for our purposes, and I can pick up the judgment at p.25 where the learned Judge said :

" It remains to be considered whether I should exercise my power under section 18(3) to declare the promissory note or cheque enforceable to any extent. In considering whether it would be inequitable that the note and cheque should be held not to be enforceable in terms of section 18(3), I am to have regard to all the circumstances. I consider that these include the object of the Money Lenders Ordinance, and that of the requirement for attachment or inclusion of the prescribed summary. The latter incidentally alerts borrowers to their right under the Money Lenders Ordinance at any time to repay their loans together with interest up to the date of repayment."

And on p.26 the learned Judge said :

" To proceed to others, although on the probabilities I have accepted the Plaintiff's version of material events, there are disquieting features of those events that must be material to the exercise of the power under section 18(3). The transactions involving Mr Cheung could have been even better organised and documented by the Defendant to show clearly the respective positions and liabilities of the Defendant and Mr Cheung. If that had been done the Defendant might not have got herself so deeply involved. Furthermore, it seems to me that the Plaintiff indulged in a degree of looseness and imprecision so as to be able to claim against both Mr Cheung and the Defendant ....."

Then at p.27, the learned Judge made these observations :

" Finally I consider that in rendering agreements and securities that contravene section 18(1) unenforceable, the Legislature must have intended that to be the ordinary consequence. That object would be undermined by overgenerous exercise of the power under section 18(1)."

63. The next case I go to is Brother's Company (a firm) v. Ah Puk Transportation (a firm) [1986] HKLR 821, a decision of Mayo, J. (as he then was) in which the learned Judge considered a number of authorities and made some particularly pertinent observations which deserve quotation in extenso. They begin from p.824 as follows :

"Mr Chu Tak for the plaintiff referred me to a line of New Zealand cases where the courts had attempted to formulate principles in exercising a similar discretion which was exercisable under their legislation. The cases of Ross Cole Investment Corporation Ltd. v. New Fashions Ltd. [1958] NZLR 55 and Marac Finance Ltd. v. Virtue [1981] 1 NZLR 586 were authority for the proposition that the most important consideration to be borne in mind by the court was whether the borrower had suffered any prejudice as a result of the non-compliance with the statutory requirements. Mr Chu Tak argued that it was manifest from the facts of the present case that the defendant had not suffered any such prejudice. He had received substantial loans and had clearly fully understood all of the salient features of the transactions. He had been willing to go along with the arrangements and had repaid principal on an earlier loan and interest payments on the loans, the subject matter of this action. It would therefore be an appropriate case to exercise the discretion reposed by s.18(3) in favour of the plaintiff. He also referred to the New Zealand cases of Adams and Another v. Paul's Properties Ltd. [1965] NZLR 161, Birch v. Shaw and Another [1963] NZLR 927 Combined Taxis Co-operative Society Ltd. v. Slobbe [1972] NZLR 354 as being cases where the New Zealand courts had to a greater or lesser extent been prepared to mitigate the rigours of the money lending legislation. I consider that the case which offers the most assistance in this connection is Adams and Another v. Paul's Properties Ltd. Woodhouse, J. extended the scope of the matters which should be weighted by the court and had this to say at p.171 :

'I think that in order to estimate "the nature, extent and effect" of the original default the Court would need to take into account the way in which the transaction had developed. Attempts by a money lender during the course of the contract to make use of some objectionable feature of it could well have significance, in my opinion, just as the size of the principal sum still outstanding and its proportion to the original loan could influence a decision as to the equities, not only as between the parties but also in relation to the regulatory purposes of the Act as a whole. I think that the circumstances to be taken into account should include such matters as the relative status of the parties, the nature and extent of the default, the way in which it arose, the implications for the borrower, and the attitude of the lender and the general appearance of the contract throughout.'

With respect it seems to me that Woodhouse, J. has adopted a very sensible approach and I am satisfied that there is nothing contained in s.18(3) of our Ordinance which would preclude me from canvassing all of the matters he refers to. There is only one case which Counsel were aware of which deals with the exercise of this discretion in Hong Kong. It is the unreported case of Lee Wang Investment Co. Ltd. v. Leung Boon-sing High Court Action No.4024/83, unreported. Deputy Judge Nazareth (as he then was) did not have the benefit of having cited to him the New Zealand cases I have referred to. However, he also adopted a liberal approach to the exercise of the discretion and he considered a wide range of circumstances. I am satisfied that the correct approach to adopt is to consider all of the matter referred to by Woodhouse, J.

In considering the exercise of this discretion two matters stand out as being particularly significant. The first is the rate of interest which was charged. It is an extremely high rate of interest and does not fall very far short of coming within the category of extortionate loans. The second feature I would refer to is what can best be described as the blatant disregard of the provisions of the Money Lenders Ordinance. It would appear from Mr Leung's evidence that no attempt was made either with the defendant or any of their other customers to comply with the requirements of s.18. In none of the New Zealand cases which I have referred to were either of these features present. In all of the cases the rates of interest were within reasonable bounds and some attempts had been made to comply with the requirements of the law.

I will next consider the passage in Woodhouse, J.'s judgment where he refers to attempts by the money lender during the course of the contract to make use of some objectionable features offered. Mr Leung agreed when giving evidence that the consequence of proceeding in the manner the plaintiff did and exchanging cheques was to enable the plaintiff to have complete control over the situation. By holding undated or postdated cheques, they could at any time effectively call up the principal without necessarily communicating with the borrower. If it suited them they could continue to receive a very high rate of interest while the borrower was able to continue to afford the payments. It would seem to me that the plaintiffs placed themselves in a highly advantageous position and they achieved this by totally disregarding the relevant legislation.

I think that it is also necessary for me to consider the wider implications of this case. What are the implications if I exercise this discretion in favour of the plaintiffs. As I have already indicated they have chosen to disregard the provisions contained in s.18 of the Ordinance. If in a flagrant and obvious case such as the present one I exercise the discretion in favour of the plaintiffs there would surely be very few cases where it would be proper to withhold the exercise of the discretion. This would mean that money lenders could disregard the operation of the law with virtual impunity. I do not think that this is what was intended by s.18(3). Undoubtedly there are excellent reasons why the legislature chose to lay down the requirements contained in s.18. One of the reasons surely would be to help prospective borrowers from acting against their own best interests. It is also clearly the intention that borrowers should be made fully conversant with their rights. I can think that there would be few occasions when a court would be prepared to exercise this discretion in favour of a money lender who had made little or no attempt to comply with the requirements of the law. It is perhaps worth observing in passing that the legislature appears to take a serious view of contraventions of the requirements of the Money Lenders Ordinance, serious criminal sanctions are included in the Ordinance for non-compliance."

64. I have also looked at the unreported decision of the Court of Appeal in Cheung Chow v. Cheung Ng Sheong Steven, which was on Mr Lau's list of authorities. It was an O.14 appeal and is referenced as Civ App 119 of 1993 and judgment was delivered on 24th November 1993. Again the facts are not material but there are some observations worth referring to, first of all, from the judgment of Bokhary JA (as he then was) on at p.6 as follows :

" Now, this branch of the law is to some extent a developing one. There are not very many Hong Kong cases. Our attention has been drawn to two. The first is the decision of Deputy Judge Nazareth QC in Lee Wang Investment Co. Ltd v. Leung Boon Sing, High Court Action No.14024 of 1983, January 14, 1985, (unreported). The other is the decision of Mr Justice Mayo in Brother's Company v. Ah Puk Transportation [1986] HKLR 821.

It is at least reasonably arguable that, as those learned judges held at first instance, the courts should be slow to relieve money lenders who fail to comply with the Ordinance regulating their activities, since any other approach would be to frustrate rather than to promote the objects of such legislation. One can understand that point of view, as money lenders are sometimes companies, and the financial penalty is not particularly high when it comes to the criminal sanctions for breaches of the provisions of the relevant legislation. In a final appeal with all the facts having been investigated, as opposed to an interlocutory one with many relevant facts in issue, this Court would be in a position to given further guidance as to how the discretion is to be approached.

If it be correct for the courts to approach their discretion in the way in which it was approached in the two first instance decisions which I have mentioned - and I do not think that we can rule that out at this stage - then it would be important to have a full picture of the activities in general of the money lender in question."

And on p.8 Mortimer JA had this to say :

" I would leave the matter by simply saying this - that for my part I am not to be taken as accepting the approach to the exercise of discretion under the proviso that has been demonstrated so far by judges at first instance."

65. The last Hong Kong case I need mention is the unreported judgment of Woo J. in Wong Kwai Fun v. Li Fung, HCA 5810 of 1986, in which judgment was handed down on 28th January 1994. It was a wide-ranging judgment but it does not contain any new statement of principle on the ambit of s.18(3) of the Money Lenders Ordinance.

66. Mr Fung also, helpfully, referred me to other dicta of Woodhouse J in Adam's v. Paul's Properties Ltd., [1965] NZLR at p.171. Mayo J in the Brother's Company's case had already quoted from Woodhouse J's judgment, in the extract set out earlier, but Mr Fung, correctly in my view, submitted that a more extensive citation from that judgment would be useful. At p.171, beginning at line 21, Woodhouse J had this to say :

"..... In the Ross Cole case McCarthy J. considered that the circumstances to be taken into account 'are the circumstances in which the transaction was entered into, and 'nature, extent, and effect other than that arising merely by 'virtue of ss. 7 and 8, of the non-compliance.' He then went on to say that events or conduct subsequent to the completion of the actual lending can rarely have relevance. But with all respect to the view contained in this last qualification, I think that, applied too literally, the qualification could have the effect of excluding from consideration some matters which might have a significant bearing upon the equities of the case. I would prefer to leave the matter on a rather wider basis. I think that in order to estimate 'the nature, extent and effect' of the original default the Court would need to take into account the way in which the transaction had developed. Attempts by a moneylender during the course of the contract to make use of some objectionable feature of it could well have significance, in my opinion, just as the size of the principal sum still outstanding and its proportion to the original loan could influence a decision as to the equities, not only as between the parties but also in relation to the regulatory purposes of the Act as a whole. I think that the circumstances to be taken into account should include such matters as the relative status of the parties, the nature and extent of the default, the way in which it arose, the implications for the borrower, and the attitude of the lender and the general appearance of the contract throughout. Then the question arises, however, whether or not it is open to the Court to impose terms in order to assist in deciding whether a transaction should be declared to be enforceable. It cannot be doubted that the Court might well be prepared to exercise its discretion in favour of a transaction if it could ensure some suitable modification of the arrangements originally made, and yet decline to do so if the bare alternatives were a transaction wholly enforceable or wholly unenforceable. The purpose of the section being not only to regulate money lending transactions in the public interest but also to enable substantial justice to be done between the parties in particular cases, I am of the opinion that this could not be achieved - at least on some occasions - in the absence of a power to impose terms. The question was raised before McCarthy J. in the Ross Cole case, but in the particular circumstances he found it unnecessary to decide the question on the grounds that the transaction should be held to be enforceable without any sort of qualification."

67. Mr Fung has urged upon me the financial experience of T.C. Ng and the 1st Plaintiff, her, according to Mr Fung, complicated financial and business dealings with, among others, T.C. Ng and Noel Ng and her possible investment involvement financially in the Shenzhen project. The last point, in particular, was capably developed in cross-examination, but I do not find that it has been made out on the evidence.

68. I certainly do not find that the 1st Plaintiff is a babe in the woods in the world of finance. At the same time, I accept her evidence that these transactions were entered into by her to assist T.C. Ng and from which she derived no personal benefit.

69. If the 2nd Defendant's case had been that it was a mistake that the statutory formalities had not been complied with, and that the 3rd Defendant was merely inserted into the picture as a matter of convenience, or some other reasons, that may have caused me to exercise my discretion favourably to the 2nd Defendant under s.18(3).

70. Where, however, the 3rd Defendant comes before the Court, armed with, in my judgment, blatant and unmitigated untruths in his witness statement, which he then confirms on affirmation in oral testimony, to endeavour to conceal what really happened and to maintain the charade that he was the lender and protagonist in the lending, and this is also the 2nd Defendant's case, this puts a completely different complexion on how I consider my discretion ought to be exercised.

71. I can hardly be well disposed to any form of concealment and dishonesty. I have no doubt that s.18(3) of the Money Lenders Ordinance was not meant to cure defects of formality based on and coupled with the device of under-valuing security supplied and compounded with untruthful evidence. It would be grossly unjust and inequitable to give effect to the Sale and Purchase Agreement. I cannot see my way to exercising the statutory discretion to declare the Sale and Purchase Agreement and the security of the residential property enforceable.

72. I have carefully considered whether I should declare the agreement or security enforceable either in part or subject to terms. I have taken into account the principles in the judgments already referred to, in particular the lengthy passage that I have already read from the judgment of Woodhouse J in the Adams' case. Ultimately, I do not feel able to. The $800,000 loan transaction has in effect been enforced, despite suffering from similar technical and other defects. In all the circumstances, in my judgment, the equitable course is to declare the Sale and Purchase Agreement and the security in respect of the residential property unenforceable.

73. In the circumstances, I grant the reliefs sought by the 1st Plaintiff under sub-paras.(1)-(3) of para.B and sub-paras.(1)-(5) of para.C to the prayer for relief in the Re-amended Statement of Claim save that under sub-para.(1) of para.C, I would delete the words "sham agreements and each is". The 2nd Plaintiff is also to have judgment for $3,000 plus interest on that sum.

74. As for the sum of $148,660 under para.37 of the Re-amended Statement of Claim, in my judgment, the 2nd Defendant must repay the amount to the 1st Plaintiff less sums paid by way of stamp duty and the amount retained by the solicitors as additional stamp duty which they should now return to the 1st Plaintiff as and when she requests them to do so unless there are legitimate reasons of which I am not aware for them not to do so. Like the $3,000 claimed by the 2nd Plaintiff, these items of expenditure are recoverable as against the 2nd Defendant by the 1st Plaintiff as they fall within s.27(4) of the Money Lenders Ordinance, which I have already set out in an earlier part of this judgment.

75. As for the damages claimed, I am not satisfied that the 1st Plaintiff intended to sell or would have sold the residential property in 1997. She had purchased it for the long term and if she had been serious about selling, I have no doubt that she would have, through her lawyers, either given notice to the Defendants or made the necessary application to the Court under the Land Registration Ordinance. I am also not satisfied that there is a sufficient cause of action or, if there is, it has been adequately pleaded.

76. For completeness, I should just add that the Counterclaim of the 3rd Defendant is dismissed.

77. I believe that covers everything except costs on which I will hear the parties. Before I do, I would wish to express my appreciation to all Counsel for their good sense, hard work and adroit presentation of their cases which have made my task that much easier.

[After submissions]

78. I will order the costs of these proceedings to be paid by the 2nd and 3rd Defendants to the Plaintiffs.