FIELD FINANCE LTD v. CHEUNG MO CHING

HCA 2818/2018

[2023] HKCFI 3311

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2818 OF 2018

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J U D G M E N T

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INTRODUCTION

1.  The plaintiff is a money lender licensed under the Money Lenders Ordinance, Cap 163. 

2.  On 17 May 2018, the plaintiff and the defendant entered into a loan agreement (“the Loan Agreement”).  According to its written terms, the plaintiff agreed to advance a loan of $2,000,000 to the defendant for a term of 12 months at an interest rate of 24% per annum.  The defendant agreed to repay the loan in 12 monthly instalments, with the first to eleventh instalments in the sum of $40,000 each, comprising interest only, and the twelfth instalment in the sum of $2,040,000, comprising the principal and the last month’s interest (“the Loan”). 

3.  The defendant executed a second legal charge dated the same date in which she charged her interest in the property situated at Flat A, 19^th Floor, Tower 1, Lido Garden, Nos 41-63 Castle Peak Road, Sham Tseng, New Territories (“the Lido Garden property”) as security for the Loan (“the Second Legal Charge”).  The property was co-owned by the defendant and her husband.  It was at that time subject to a mortgage loan with HSBC, with an outstanding principal sum of over $1,000,000.

4.  The defendant signed the Loan Agreement, the Second Legal Charge and other documents at the office of a law firm called Philip T F Wong & Co (“PTFW”), who were then acting for the plaintiff in respect of the Loan. 

5.  It is the plaintiff’s pleaded case that the Loan was drawn down on the same day but the defendant defaulted on the repayment after the third instalment.  In November 2018, the plaintiff commenced the present action claiming the outstanding sums, together with costs.

6.  This is the trial of the plaintiff’s claim.

7.  Ms Breanne T F Kwok, counsel, appeared for the plaintiff at the trial.  She confirms that for the principal, the plaintiff now claims a sum of $1,880,000 instead of $2,000,000.  The difference of $120,000 represents the sum retained by the plaintiff on the drawdown day for settling the first three monthly instalments.  The plaintiff asks for judgment be entered in the sum of $1,880,000 with interest accruing at the contractual rate of 24% per annum from 17 May 2018 until payment in full.

8.  The defendant accepts that the Loan Agreement, the Second Legal Charge and the other documents were signed by her voluntarily. Her primary contention is, however, that she was induced into entering into the Loan by a Mr Sean Chan (陳尚文), who held himself out as a representative of C Management Limited (思易策劃有限公司), and that Sean Chan and C Management acted in collusion with the plaintiff. Of the loan amount of $2,000,000, PTFW retained $120,000 on behalf of the plaintiff and the defendant was induced to pay the balance of $1,880,000 to Sean Chan on the day.  As a result, the defendant did not receive any loan proceeds at all.

9.  Mr Chris Chan, counsel for the defendant, submits that the plaintiff was acting in contravention of section 27 of the Money Lenders Ordinance and the defendant is entitled to set off the sum of $2,000,000 from the Loan pursuant to subsection (4).

10.  In addition to section 27, the defendant also relies on sections 2, 18, 22, 24 and 25 to defend her case.  Unless otherwise stated, all references to sections below are of the Money Lenders Ordinance.

11.  The plaintiff denies that it was acting in collusion with Sean Chan and/or C Management and says that it had no knowledge of, or involvement with, either of them when the Loan was advanced.

12.  The trial was therefore primarily about the factual dispute on the issue of collusion.  Mr Chan accepts that the burden is on the defendant to prove the alleged collusion.

13.  The material events took place from April to October 2018. 

14.  The plaintiff called four witnesses to testify at trial.

(1)  Mr Chang Shui Cheong (“Chang”) – he was the sole director of the plaintiff at the time. 

(2)  Mr Chan Chun Wang – he was the representative of the plaintiff who contacted the defendant in relation to the Loan.  I shall call him by his English name “Cyrus Chan” below.

(3)  Ms Leung Wai Yin (“Leung”) – she was a staff of the plaintiff.  She prepared the documentation for the Loan.

(4)  Ms Rita Lai (“Lai”) – she was a clerk at PTFW. She arranged for the legal documentation to be signed by the defendant.

15.  The defendant herself testified.  She did not call any other witness.

16.  I should note at the outset that the defendant had made a total of four witness statements in this action over a period of about 18 months.  The earliest in time was made in September 2019 and the last one in March 2021.  In her subsequent witness statements, she made a number of corrections to her earlier statements.  Not surprisingly, these corrections attract the criticism from the plaintiff.  Ms Kwok highlights the inconsistencies found in these statements in her closing submissions to say that the defendant’s testimony is unreliable.  There are in fact so many corrections that I found it necessary to ask the defendant to produce marked up versions of the first two witness statements highlighting the parts which have since been corrected.

17.  In addition to the witnesses’ testimonies, there are before me contemporaneous materials documenting (1) the interactions between the plaintiff and the defendant, and (2) the alleged dealings between the defendant and Sean Chan.  The former comprises documents executed for the Loan.  These documents are not controversial in that the defendant accepts that she had signed them.  The latter comprises WhatsApp messages exchanged between the defendant and Sean Chan and documents signed in the name of the defendant and C Management, including, most notably, a document referred to as “the Guarantee Agreement” and another document referred to as “the Receipt” in submissions.  Both documents are dated 17 May 2018.

18.  Furthermore, there are before the court some call records retrieved from the telecom companies.  They show the date and time of the telephone calls made on Cyrus Chan’s mobile phone at the relevant time. There are also records of the date and time of telephone calls made on the defendant’s mobile phone with Sean Chan, as alleged by her. 

THE PLAINTIFF’S CASE

19.  The plaintiff’s case is fairly straightforward.

The plaintiff’s mode of operation and Chang’s role

20.  In 2018, Chang was the sole director of the plaintiff.  He was responsible for approving all the loan applications.

21.  There were two sources of loan applications. The plaintiff operated an online platform for prospective applicants.  It also had a number of registered intermediaries which would refer businesses to it.

22.  It had five members of staff, including Chang himself.  Cyrus Chan and Leung were responsible for handling online applications.  Two other staff members were responsible for applications involving intermediaries.  There was a clear division of labour so that the staff responsible for online applications would not handle applications referred by intermediaries and vice versa.  

23.  For online applications, it was the plaintiff’s policy that no intermediaries would be involved and if an intermediary was found or suspected to be involved, the plaintiff would not proceed further with the applicant.  It was also the plaintiff’s policy that online applicants would need to sign the loan documents in person and the signing would have to be video recorded.  Not the entire meeting would be recorded because the contents of some of the loan documents were repetitive.  The material part which had to be captured on video was when the plaintiff’s staff informed the applicant about the plan of the loan, and when the applicant confirmed whether there was any intermediary involved.  

24.  Usually, after approving a loan, Chang would instruct his staff to prepare documentation.  Unless there was any specific issue, he would not be involved in the documentation process.

25.  It will shortly be seen that according to the plaintiff’s case, the defendant was an online applicant.  I should point out here that in his two witness statements, Chang only referred to how the plaintiff dealt with online applications.  He made no mention at all that the plaintiff also had businesses referred by intermediaries.  Chang’s evidence about the latter type of applications and that there was a division of labour between online applications and applications via intermediaries came out for the first time in his cross-examination. 

26.  In the cross-examination of the plaintiff’s witnesses, Mr Chan from time to time referred to the decision of Field Finance Ltd v Sit Ka Man [2021] HKDC 864.  The plaintiff there was the plaintiff in this action.  It was suing a borrower to recover a loan which was extended in August 2018, that is just a few months after the Loan.  Chang, Cyrus Chan and Lai were witnesses in that action.  In that trial, Chang gave evidence that the plaintiff had business referrals from intermediaries.  In our trial, it was when that was put to him that he stated for the first time in this action that the plaintiff had another team dealing with loan applications introduced by intermediaries. 

The defendant’s online application

27.  On 15 May 2018, the plaintiff received an online application accompanied by supporting documents.  The name of the applicant was “Cheung Mo Ching”, ie the name of the defendant.  The application was for a loan of $2,000,000, which was to be secured by a charge over a property.  The supporting documents included, among other things, the defendant’s HKID card, a HSBC mortgage repayment schedule related to the Lido Garden property and the defendant’s salaries tax return. 

28.  Chang then conducted a land search on the Lido Garden property and came to realise that it was co-owned by the defendant and another individual under a joint tenancy.  Chang said in cross-examination that he did not keep a record of the land search result because PTFW would conduct their own search. 

29.  Chang also conducted an online valuation of the Lido Garden property.  It was assessed to be worth $6,932,000.  Therefore, the loan-to-value ratio was below 80%.  Chang’s evidence is that, in general, the plaintiff would accept mortgage loan applications where the loan-to-value ratio was no more than 80%. 

30.  Chang preliminarily approved the application based on the loan-to-value ratio and the stable income of the defendant. 

31.  In cross-examination, Chang was challenged on how he came to the conclusion that the defendant’s repayment capability was satisfactory.  Chang said that so long as the defendant’s monthly income was sufficient to cover the monthly instalment, that would be considered satisfactory, and that the monthly income declared in the online application was $50,000 and the tax documents submitted showed that the defendant’s monthly income was around $45,600, which would be sufficient to cover a monthly instalment of $40,000. 

32.  Chang then instructed Cyrus Chan and Leung to proceed with the application.  He himself did not have any direct involvement in this application afterwards.

Events on 16 May 2018

33.  On 16 May 2018, Cyrus Chan called the staff at PTFW instructing them to prepare the legal documents and arrange for a meeting with the defendant at their office.  

34.  He then called the defendant.  The time was 11.06am.  This would be the first telephone conversation between the two of them.  The contents of the conversation are hotly disputed.  I shall call it “the 16 May 11.06am call” below.

35.  Cyrus Chan recounted the call in his witness statement:

(1)  He confirmed the identity of the defendant by spelling out her English surname and asking her to spell out her English name.

(2)  He asked the defendant to repeat the first four digits of her HKID card number.

(3)  After he confirmed with her that she had applied for a loan from the plaintiff, he verified the information of her application, including the loan amount, the address of the property to be used as security etc.

(4)  He told her about the details of the approved loan, such as the principal sum, the interest rate, the repayment method which included the retention of the first three months’ interest, the necessity for severance etc.

(5)  He asked her about the purpose of the loan.  The defendant replied that it was for short-term financing.

(6)  When he asked her where she learned about the plaintiff, she told him that she learned about the plaintiff on the internet.

(7)  Finally, Cyrus Chan made an appointment with the defendant to attend the office of PTFW on 17 May 2018 at 2pm to sign the loan documents.  He reminded her to bring along the necessary documents.

36.  In his supplemental witness statement, he stated that he could no longer retrieve the call records.  However, he recalled that the call lasted for about 10 minutes.  Subsequently, through the plaintiff’s solicitors, his telephone records were obtained from the telecom company.  It was revealed that the call in fact lasted 1 minute 54 seconds only.  In his second supplemental witness statement, he confirmed that the duration shown in the telephone records should be the correct one.  He explained that his previous recollection of the call being 10 minutes long was only based on his memory of an event which took place more than one year ago.

37.  In cross-examination, Cyrus Chan explained that in his experience, his calls with loan applicants could last from a few minutes to around 10 minutes, depending on whether the applicants raised any questions.  Before he looked at the call records, he could not remember whether the defendant was one of those applicants who asked questions during the call.  Hence, he put down 10 minutes in his supplemental witness statement.

38.  After the call, he asked Leung to prepare the loan documents.  In cross-examination, he said that Leung was sitting next to him in the office.  Leung immediately proceeded to prepare the instructions to PTFW.

39.  In cross-examination, Leung said that it took her around five minutes to draft the instruction documents to PTFW since they were generated from templates.  She then emailed them to PTFW.  The time of that email was 11.17am.

40.  At around 11.45am, Cyrus Chan sent a copy of PTFW’s business card, a copy of his own business card, and a message to the defendant via WhatsApp.  He reminded her the date and time of their meeting and the documents which she needed to bring along.

Events on 17 May 2018

41.  On the following day, 17 May 2018, Cyrus Chan called the defendant at 12.58pm.  The call lasted for 30 seconds.  There is a dispute as to what was said.  But it is not presently relevant.

42.  Cyrus Chan arrived at PTFW’s office before 2pm and was brought to a conference room.  It is Lai’s evidence that the defendant attended the office alone at around 2pm.  Lai led her to the conference room for her meeting with Cyrus Chan.

43.  During the meeting, Cyrus Chan collected the following documents from the defendant and made photocopies:

(1)  income proof issued by American Natural Biological Technology (HK) Limited (“ANBTL”),

(2)  annual statement of the HSBC mortgage loan of the Lido Garden property,

(3)  the demand note for rates and government rent for the Lido Garden property,

(4)  the defendant’s Hang Seng Bank passbook,

(5)  the defendant’s HSBC passbook,

(6)  notices of property tax sent to the defendant,

(7)  annual statements of the mortgage loan of another property owned by the defendant and her husband in Metro Harbour View in Tai Kok Tsui (“the Metro Harbour View property”) and the annual statements of another property at The Reach in Yuen Long, which was owned by the defendant (“The Reach property”),

(8)  demand notes for rates and government rent for the Metro Harbour View property and The Reach property,

(9)  the defendant’s MPF statement,

(10)  the salaries tax assessment for the year 2015/16,

(11)  the defendant’s credit report issued by TransUnion,

(12)  electricity bill, and

(13)  the defendant’s HKID card and Mainland Travel Permit.

44.  In cross-examination, it was pointed out to Cyrus Chan that there was no reason for the defendant to give him documents relating to the Metro Harbour View property and The Reach property since these two properties had nothing to do with the Loan.  Cyrus Chan replied that he just made photocopies of all the documents which the client had brought along.

45.  Part of the meeting was recorded on video.  Six documents were explained and signed during the recorded part of the meeting:

(1)  Letter of Offer,

(2)  Memorandum of the Loan Agreement,

(3)  Confirmation (whether any third-party agreement is reached),

(4)  Fee Declaration,

(5)  Important Declaration and Reminder, and

(6)  Acknowledgement of receipt of documents.

46.  A number of other documents were explained and signed inside the conference room but not recorded.

47.  At the meeting, the defendant denied that there was any intermediary or third party involved in her loan application.

48.  After signing, Cyrus Chan left the room to make photocopies.  Lai then entered the room and had a meeting with the defendant.

49.  In the presence of Lai, the defendant signed a number of documents, including the Second Legal Charge and a notice of severance.  Lai explained each and every single document to the defendant.  The entire process took around 15 minutes.

50.  After that, Lai released two cheques to the defendant – one cash cheque for $940,000 and one crossed cheque for the same sum.  Both were drawn on PTFW’s account with Bank of East Asia.  The sum of $120,000, represented by three post-dated cheques of $40,000 each, was retained by PTFW to cover the first three monthly instalments.

51.  As regards the practice of retaining a part of the loan proceeds to secure repayment of the first three instalments, Chang said that it was the usual practice for the plaintiff’s staff to inform the applicant about such arrangement, but this arrangement was not mandatory.  If the applicant objected, the plaintiff would not do so.  In cross-examination, Chang agreed that this retention arrangement was not the defendant’s idea, but she confirmed it by signing on an instruction letter which stated how the loan proceeds were to be allocated.

52.  In respect of the arrangement of splitting the loan proceeds into two cheques, Chang said it was not done at the plaintiff’s request but it was PTFW’s usual practice.  Chang was not concerned about this practice and he would leave it to the law firm to handle the cheques.

53.  Lai confirmed that the “split cheques” arrangement was indeed PTFW’s practice and it was in accordance with the instruction given by the late Mr Philip Wong, the principal of the firm.  She did not enquire into the rationale behind the arrangement.  In her oral evidence, Lai said that this instruction existed since she started working at the law firm.  When the plaintiff engaged PTFW for its loan matters, she had once told it about the arrangement. 

54.  There is a dispute between the plaintiff and the defendant as to where some of the documents were signed.  As will be seen below, the defendant says that some were signed at a small desk near the entrance of the office, instead of in the conference room.  To this, Lai confirmed that there was a small desk and two chairs near the entrance of the office but there were fung shui decorations on the small desk so it would not be used for signing documents or for meetings.  She said that the late Mr Philip Wong would not allow anyone to move the feng shui decorations.  Nor would he allow anyone to sign any document outside the conference rooms.

After 17 May 2018

55.  The first three monthly instalments under the Loan were settled using the sum of $120,000 retained by PTFW.

56.  In his witness statement, Cyrus Chan said that after 17 May 2018 he had no contact with the defendant until 17 September 2018. On that day, he sent a WhatsApp message reminding her to settle the fourth instalment.  The defendant replied on the same day accusing the plaintiff of conspiring with Sean Chan to take the sum of $1,880,000 from her and cheating her.

57.  The defendant did not settle the fourth monthly instalment and hence defaulted on the Loan since September 2018.  After some exchange of solicitors’ letters, the plaintiff commenced the present action in November of the same year.

58.  In cross-examination, it was put to Cyrus Chan that he in fact did have telephone communications with the defendant before 17 September 2018.  They took place twice on 11 July (one lasting 23 seconds and the other lasting 15 minutes 12 seconds) and once on 17 July (lasting 9 seconds).  He said that he could not remember those calls now.

59.  As for Chang, he said that the plaintiff did not receive any complaint from the defendant concerning Sean Chan or C Management until it received a letter dated 24 October 2018 from the defendant’s former solicitors (“the solicitors’ letter dated 24 October 2018”).

60.  The plaintiff accepts that PTFW were the solicitors acting for it in relation to the Loan.  However, it denies that it had acted in collusion with any third party or financial intermediary in the Loan.  It denies any knowledge or connection with C Management and/or Sean Chan.  It further denies knowledge of any dealings between them and the defendant.  It did not know how the defendant dealt with the loan money after the two cheques were given to her. 

61.  To complete the recitation of the plaintiff’s evidence, as revealed in cross-examination, Cyrus Chan and Leung are no longer with the plaintiff.  The former left in early 2020.  The latter left around the end of 2019.  Lai is also no longer working at PTFW.  She left the firm in April 2019.

The claim

62.  Based on the above, the plaintiff accepts that the sum of $120,000 did not go to the defendant in the first place.  Hence it now claims a revised principal sum of $1,880,000.  It claims interest on that sum at the contractual rate of 24% per annum from 17 May 2018 until payment in full.

63.  As regards interest, the plaintiff relies on clause (19) of the Loan Agreement, which read:

“All outstanding amounts, whether are due before or after Judgment, shall be calculated and charged at interest rate more particularly described in the First Schedule hereto, until fully settled.”

64.  Clause (h) of the First Schedule read:

“Interest on the Loan payable by the Borrower to the Lender shall be at the rate of 24% per annum.”

65.  The plaintiff seeks costs of the action on a full indemnity basis, pursuant to Clause (7)(a) of the Loan Agreement.  It read:

“The Borrower and/or the Mortgagor shall reimburse the Lender on demand all legal costs and all out of pocket expenses incurred by the Lender in connection with the enforcement of any terms of this Agreement on full indemnity basis.”

THE DEFENDANT’S CASE

66.  I now set out the defendant’s case, as summarised in Mr Chan’s closing submissions.  I specifically say so because some parts of her case have undergone significant changes since 2018.

The defendant’s background

67.  The defendant was born in 1956.  She received education up to secondary one in mainland China.  She settled in Hong Kong in 1979.

68.  In 1997, she and her husband purchased the Lido Garden property with a mortgage from HSBC as their residence.

69.  In 2005, the defendant and two other shareholders incorporated ANBTL in Hong Kong.  She worked as a manager at the company since its formation and was responsible for marketing and sales promotion.  In 2018, her monthly salary was about $18,000.

70.  Prior to the Loan, the defendant had had experiences borrowing money from finance companies using her real properties as security.  In fact it was at ANBTL’s request that she borrowed the money.  Each time it was the company who repaid the principals and interests.

71.  Before May 2018, she had taken out six mortgage loans with different finance companies, using the Metro Harbour View property, The Reach property and another property in Mongkok.  She stresses that she had not defaulted on any of these loans.

The need for financing in 2018

72.  In around March 2018, as ANBTL urgently needed a sum of $2,000,000 for expansion purposes, one of the shareholders took out a high interest loan in the mainland for short-term working capital.  As the interest rate was very high, the defendant proposed to mortgage the Lido Garden property to either HSBC or Hang Seng Bank to replace the mainland loan.  However, both banks rejected the application due to the defendant’s low monthly salary and old age.

Events from April to mid-May 2018

73.  In April 2018, about one week after the banks’ rejection, the defendant received a cold call from C Management, asking her whether she needed to borrow money.  She replied that she would need to borrow more than $1,000,000.  She also confirmed that she had real property.  

74.  A few minutes later, the defendant received a phone call from a man calling from C Management, whom she later knew to be Sean Chan.  The latter asked her about the details of her properties.  

75.  In the next few days, Sean Chan called the defendant a few more times.  Sean Chan told her that he could get Bank of East Asia to approve a low-interest mortgage loan of $2,000,000 at 2.5% per annum.  However, he said that the bank would not approve the loan unless the applicant had a special reason, eg the need to repay a large sum of money.  He then said that the defendant should first borrow a provisional loan of $2,000,000 from a finance company and she could then inform the bank that she required a loan to repay this provisional loan.

76.  In the end, Sean Chan proposed to help the defendant take out a low-interest mortgage loan of $5,000,000 from Bank of East Asia with re-financing of a second mortgage of the Metro Harbour View property and The Reach property.  Sean Chan said that if the defendant borrowed only $2,000,000, the interest rate would be relatively high.  He also said that the interest for one month on the provisional loan would be deducted from the loan advanced by the bank if C Management successfully helped the defendant to apply for the $5,000,000 loan within one month.

77.  Sean Chan also said that if C Management failed to apply for the $5,000,000 loan within one month, the defendant would not be required to repay any interest and principal on the provisional loan. 

78.  On 17 April 2018, the defendant brought along the demand notes for rates and government rent of the Metro Harbour View property and The Reach property and a copy of her HKID card to C Management’s office.  

79.  During the meeting, Sean Chan said that C Management was a partner with several finance companies and banks and that it specialised in helping customers to obtain low-interest loans.  Sean Chan proposed to the defendant that she should ask her boss to write a letter to prove that her monthly income was over $200,000 in order to expedite the processing of her application to Bank of East Asia.  He also repeated that the defendant had to borrow a provisional loan from a finance company first to prove that she needed to repay other loans as a reason to apply for a loan from the bank.  He repeated that the defendant would not be required to repay any interest and principal on the provisional loan if C Management failed to apply for the $5,000,000 loan within one month.  Sean Chan inquired whether the defendant had any account with the bank and found out that she did.

80.  In reliance on and believing in the representations made by Sean Chan, the defendant agreed to his proposal.  ANBTL wrote a letter dated 12 May 2018 certifying the defendant’s monthly income to be $210,000 (the “ANBTL income proof”).

81.  In mid-May 2018, the defendant gave various documents to Sean Chan, including the ANBTL income proof, residential address proof, bank account records, demand notes for rates, mortgage repayment schedules of the Metro Harbour View property, The Reach property and the Lido Garden property, a copy of her HKID card, copies of her MPF statements, salaries tax assessment for 2015/16, property tax assessment for 2016/17, Chong Hing Bank’s deposit slip, TransUnion’s personal credit report and electricity bill.

Events on 16 May 2018

82.  On 16 May 2018, Sean Chan called the defendant telling her that the provisional loan had been secured from the plaintiff, and asked her to go to C Management’s office immediately.  She did. 

83.  During the meeting, Sean Chan told the defendant again that the lender was the plaintiff.  He gave her the telephone number of the plaintiff’s contact person, namely Cyrus Chan, and asked her to go to PTFW at 2pm on 17 May 2018 to sign the loan documents and collect the cheques.  He would go together with her.

84.  He said that it might take up to three months to process the application for the $5,000,000 loan and a sum of $120,000 would be withheld to pay off the first three monthly instalments of $40,000 each under the provisional loan.  He told the defendant to withdraw $1,880,000 in cash on 17 May 2018 and he would collect that sum and deliver it to the representative law firm of the bank for custody.

85.  Sean Chan gave her an agreement to sign.  That would be the Guarantee Agreement.  It was a two-page document and entitled “雙方保證協議書及細則相關條款”.  It was dated 17 May 2018.

86.  I quote below the relevant clauses.  “甲方” was the defendant and “乙方” was C Management.

“1. 乙方於2018年5月17日轉介甲方在油田財務有限公司成功貸款2,000,000港元。

2. 甲方須在黃家興律師行托管120,000港元，用作預留3期油田財務有限公司之還款用途，每期供款為40,000港元。

3. 甲方須於2018年5月17日將1,880,000港元交由乙方之代辦主任，進行本司及東亞銀行有限公司之托管。代辦主任亦需於2018年5月17日收取甲方2,000,000港元後交到東亞銀行有限公司之律師事務所進行托管之事宜。

4. 此過程中，甲方無須支付任何手續費及律師費用。

5. 該貸款條款以作結餘轉戶到東亞銀行有限公司之項目。

6. 如在30工作天內乙方未能協助甲方成功辦理結餘轉戶之項目，乙方須就此事宜作出港幣2,000,000之賠償。而甲方亦不用對油田財務有限公司之貸款作出供款責任。

7. 乙方於2018年5月17日保證將在30工作天內 (即油田財務有限公司所貸款之第一期供款日期前)，成功轉介甲方在東亞銀行有限公司開設循環貸款戶口貸款額5,000,000港元，實際年利率2.5% (詳情細則請參閱東亞銀行所發出之預批信)。

8. 乙方成功協助甲方在上述銀行開設循環貸款戶口後，乙方須協助甲方原有油田財務有限公司2,000,000港元進行結餘轉換。

9. 如乙方未能於有效日期內完成協議上協助甲方在東亞銀行有限公司開設合適循環貸款戶口，甲方有權終止與乙方之間授權與協議，亦無需承擔乙方轉介的油田財務有限公司物業按揭貸款當中2,000,000港元責任。…” (underline added)

87.  The contents reflected the proposal made by Sean Chan all along.  In gist, C Management guaranteed that within 30 working days of 17 May 2018, it would successfully arrange the $5,000,000 loan with Bank of East Asia at the rate of 2.5% per annum – see clause 7.  It would assist her to deal with the $2,000,000 loan from the plaintiff in the form of “balance transfer” – see clause 8.  On the other hand, if it failed, the defendant would not be required to repay the loan to the plaintiff – see the underlined sentence in clause 6. 

88.  The defendant signed on the Guarantee Agreement.

89.  Sean Chan gave a formal receipt to the defendant to sign.  That was the Receipt.  It was dated 17 May 2018.  It stated that C Management had received $1,880,000 in cash from the defendant for custody.

90.  Sean Chan told the defendant that she did not need to repay the principal sum of the provisional loan, as after Bank of East Asia granted the $5,000,000 loan, it would instruct its solicitors to hand over the security deposit of $1,880,000 and give that together with interest to the plaintiff to repay the provisional loan.

91.  Sean Chan also told the defendant that there would be a video recorded interview at PTFW’s office, the staff would ask her if there was an intermediary involved in the loan, and the defendant should say no.

92.  Mr Chan highlights that according to the call records, a caller with unknown number called Cyrus Chan at 11.05am, which lasted for about one minute.

93.  After the defendant left the meeting, she received a call from Cyrus Chan.  That would be the 16 May 11.06am call.  At that time, she did not realise that it was Cyrus Chan who called.  She in fact thought it was Sean Chan.

94.  Contrary to Cyrus Chan’s evidence, the defendant says that he only reminded her to go to PTFW’s office punctually on the following day at 2pm, as he had already made an appointment with the law firm.

Events on 17 May 2018

95.  There was a short phone conversation between Cyrus Chan and the defendant.  However, the contents, which are disputed, are not presently relevant.

96.  At around 2pm, the defendant and Sean Chan went to PTFW’s office together.  She had brought along with her only her HKID card, Mainland Travel Permit, the passbooks of HSBC and Hang Seng Bank. 

97.  Upon arrival, Sean Chan stood at the lift lobby outside the glass door of the office.  The defendant went inside alone. 

98.  Lai arranged for the defendant to meet Cyrus Chan at a small table next to the reception which was about two to three metres from the glass door.

99.  Cyrus Chan gave her a number of documents to sign.  He briefly explained the contents to her.  When she signed documents, she looked at the glass door from time to time and saw that Sean Chan was observing her signing documents.  He could be clearly seen from where Cyrus Chan and the defendant were.  It is the defendant’s evidence that she signed at least nine documents at the small table. 

100.  Later, Lai arranged for her to go to a conference room to have a video interview with Cyrus Chan.  The video was adduced as evidence in the trial.  It lasted for 9 minutes 34 seconds.  There is no dispute that in the video recorded interview, the defendant signed six documents.

101.  After that, Cyrus Chan left the conference room and Lai came in.  She explained some documents to the defendant.  After signing them, the defendant was given copies by Lai. 

102.  There is no dispute that the defendant then received two cheques from Lai, each in the sum of $940,000.

103.  The defendant then went with Sean Chan to Bank of East Asia.  She cashed the cash cheque and deposited the crossed cheque and obtained a total sum of $1,880,000 in cash immediately.  She gave the whole sum to Sean Chan.  Sean Chan gave the Guarantee Agreement and the Receipt to her. 

Events after 17 May 2018

104.  On 17 June 2018, the defendant called Sean Chan and asked about the $5,000,000 loan.  He replied that it was in progress. However, after that conversation, the defendant was unable to contact him despite many attempts.  She therefore began to feel that she had been cheated. A few days later, the defendant eventually spoke to Sean Chan, who said that the loan was still being processed.

105.  As the defendant felt that she had been defrauded, she reported the matter to the police.  She made a statement on 5 July and a supplementary statement on 11 July 2018.  (I shall refer to them as “the first police statement” and “the second police statement” below.)  On the second occasion, she made a call to Cyrus Chan.  That phone call was shown in the call records.  The defendant says that during the call, she told Cyrus Chan that she could not contact C Management or Sean Chan and enquired about the $5,000,000 loan.  But Cyrus Chan did not provide any answers.

106.  Based on the above, the defendant believed that:

(1)  The plaintiff had acted together with PTFW as its agent in charging her $120,000 in procuring or obtaining the Loan.

(2)  The plaintiff and C Management were acting in collusion and in conspiracy to induce her to enter into the Loan Agreement and fraudulently cheated her $1,880,000.

107.  As a result, despite that the defendant had signed on the Loan Agreement, the Second Legal Charge and other documents, she in fact received no loan money at all on 17 May 2018.

Grounds in support of the collusion

108.  The collusion allegation is the main plank of the defendant’s factual case.  It is therefore necessary to set out her grounds in support.  In his written closing submissions, Mr Chan highlights the following.

109.  First, he points out the similarity of the salient terms between the Guarantee Agreement and the Receipt on the one hand and the Loan Agreement on the other.  The similar terms included the loan amount of $2,000,000, the withholding of the first three months’ interest of $40,000 each, the appearance of the name of the plaintiff.  These similarities, he submits, makes the connection between C Management and the plaintiff more than a mere coincidence.  He submits that the most reasonable explanation is that the plaintiff had told C Management about the terms before Cyrus Chan contacted the defendant via the 16 May 11.06am call.  And that was why Sean Chan was able to tell the defendant about the loan terms and give her the Guarantee Agreement to sign at the meeting in the morning of 16 May 2018 before that call.

110.  Secondly, Mr Chan submits that Cyrus Chan had initially exaggerated the duration of the 16 May 11.06am call in this action. All along, he said the call lasted for about 10 minutes.  It was only after the call records were retrieved from the telecom company subsequently that he changed the duration to 1 minute 54 seconds.  Initially, by saying that the call lasted for about 10 minutes, Cyrus Chan falsely claimed that the purpose of the call was to verify information with the defendant and inform her of the details of the loan.  This would go to show that it was the first contact between the two of them.

111.  Mr Chan submits that the real purpose of the call was only to inform the defendant about the signing of the loan documents at PTFW’s office on the following day.  And 1 minute 54 seconds would be sufficient for that purpose.  The information of the defendant had already been passed on by C Management to the plaintiff before Cyrus Chan called the defendant for the first time.  That shows collusion between the plaintiff and C Management.

112.  Mr Chan submits that it was a standard practice of the plaintiff, as shown in the decision of Sit Ka Man.  The first call between Cyrus Chan and the borrower there lasted for less than 1 minute: see para 15.

113.  Thirdly, the video recording of the signing of the documents was used as self-serving evidence so that the plaintiff could distance itself from any intermediaries.  Chang’s oral evidence is that the purpose of the recording was to protect the interests of both the plaintiff and the borrower.  Mr Chan submits that if that was truly the case, all of the documents, and not just the six of them, should have been signed with recording.  Some of the unrecorded documents were indeed important documents. This shows, Mr Chan contends, that the only reasonable purpose of the recording was to get the borrower to say in front of camera that there was no intermediary involved.  The video was entirely self-serving.

114.  Fourthly, Mr Chan points to the fact that the plaintiff was in possession of documents which were unrelated to the Loan but were used for the $5,000,000 loan.  They included the mortgage repayment schedules of the Metro Harbour View property and The Reach property and the ANBTL income proof.  The latter was dated 12 May 2018, which was before the signing of the Loan Agreement.  This means that the plaintiff had obtained these documents from C Management.

115.  Fifthly, earlier on in this action, Cyrus Chan had concealed the existence of the 15-minute call between him and the defendant which took place on 11 July 2018.  This is a strong indication that the plaintiff wanted to hide the connection between the plaintiff and C Management.

116.  Mr Chan also points out that while Cyrus Chan could recount with details the contents of the 16 May 11.06am call, he said in oral testimony that he had no recollection of the 15-minute call on 11 July 2018.  It is submitted that it is highly unlikely that he could have forgotten the existence of the 15-minute call.  The only reasonable inference is that Cyrus Chan wanted to conceal the complaint of the defendant in this action, because that would reveal the connection and collusion between the plaintiff and C Management.

117.  Sixthly, Chang’s evidence that he did a land search on 15 May 2018 is suspicious.  According to his evidence, he found out from the search that the Lido Garden property was held under a joint tenancy and hence he asked Cyrus Chan and Leung to prepare documents, which would include a notice of severance.  Leung then sent the instruction email to PTFW, including an instruction regarding a notice of severance, at 11.17am 16 May 2018.  However, the land search results disclosed by the plaintiff in these proceedings were done by PTFW at 12.42pm on the same day. 

118.  Chang said in cross-examination that he did not keep a record of the land search results which he did on 15 May 2018.  Mr Chan submits that that is completely unbelievable, as the results were an important document for the plaintiff.  Mr Chan submits that without doing the land search on 15 May 2018, it is inherently improbable for the plaintiff to have known the status of the joint tenancy of the Lido Garden property when Leung sent the instruction email to PTFW at 11.17am on 16 May.  Hence, the plaintiff should not have been able to instruct the law firm about the severance.  The inference is that the status of joint tenancy was conveyed to the plaintiff by someone else.

119.  While the plaintiff accepts that PTFW were acting for it in relation to the Loan, it denies the allegation of collusion altogether.  Ms Kwok submits that the defendant’s evidence at best shows that she had been deceived by C Management and/or Sean Chan.  But there is no objective evidence to show any connection between them and the plaintiff.  The allegation of collusion is purely based on the defendant’s subjective speculations.

Defences under the Ordinance

120.  Based on the above factual premise, the defendant puts forward a number of defences under the Money Lenders Ordinance.

121.  First, as conceded by the plaintiff, the sum of $120,000 was withheld by PTFW to cover the first three monthly instalments and was never received by the plaintiff.  Hence it should be disregarded when determining the principal of the Loan.  As regards the sum of $1,880,000, it was charged and received by C Management acting in collusion with the plaintiff in relation to the Loan.  This was in breach of section 27(3).  The sum should be set off from the amount lent pursuant to section 27(4).  The principal of the Loan would therefore be $0 (ie $2,000,000 - $120,000 -$1,880,000).  Hence the defendant is not liable to repay anything to the plaintiff.

122.  Secondly, Mr Chan argues that the sum of $120,000 and the contractual interest of $480,000 would both qualify as interest under the Loan.  The interest under the Loan would be $600,000.  The principal being $0, the effective interest rate of the Loan would therefore be ∞% ($600,000/$0 x 100%).  That would be in excess of 60%, namely the maximum interest rate allowed under section 24(1).  This would render the Loan unenforceable pursuant to section 24(2).

123.  Thirdly, even if the court does not find any collusion, Mr Chan contends that the Loan should be reopened under section 25.

(1)  The effective rate of interest of the Loan is 31.91% ($600,000/$1,880,000 x 100%).

(2)  The plaintiff approved the Loan based on the information that the defendant had a monthly income of about $45,600.  With each monthly instalment being $40,000, the defendant would have to use about 88% of her income to settle the interest each month.  It was unreasonable for the plaintiff to approve the Loan, knowing that it would be highly likely the she would be unable to repay.  The only implication is that the plaintiff was chasing after the Lido Garden property.

(3)  In the “Memorandum of Loan Agreement pursuant to section 18(1)” signed on 17 May 2018, it was stated that the place of negotiation of the Loan was at the plaintiff’s office.  However, the defendant had never been to the plaintiff’s office.  When Cyrus Chan first called the defendant on 16 May 2018, there was no explanation of the terms of the Loan.  It was only done at PTFW on the following day.  Hence there was a breach of section 18(2)(j).

(4)  Furthermore, by withholding the sum of $120,000 from the principal, the amount actually lent was only $1,880,000.  Hence the effective interest rate was not 24% per annum, which was the figure stated in the Memorandum.  The plaintiff was therefore in breach of section 18(2)(d) and (i).  This was a deliberate breach, rather than an inadvertent one.

124.  The defendant contends that the plaintiff’s conduct, when considered as a whole, shows a complete disregard of the provisions of the Ordinance.  The transaction should be reopened and the defendant should be put back to the position she would have been in had she never been approached by C Management or Sean Chan: Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2018] HKCFI 2666.  That is to say, she should not be liable to repay anything.

125.  Fourthly, even if the court is of the view that the Loan Agreement is enforceable, the defendant says that it would be equitable for the court to hold that it is only enforceable to the extent that the interest should accrue for the term of one year only, with interest payable in the sum of $331,200 (ie $1,880,000 x 24% - $120,000).

ISSUES IN DISPUTE

126.  The parties have agreed on the following list of issues.  I reproduce them below with some of the wording simplified. 

127.  Issue 1 – whether the plaintiff acted together with PTFW as its agent in charging the defendant charges, expenses or other payments in procuring or obtaining the Loan.

128.  Issue 2 – whether the plaintiff acted in collusion with C Management and/or its employees, or whether C Management acted as an agent of the plaintiff in procuring or obtaining the Loan.

129.  Issue 3 – if the answer to Issue 2 is affirmative, whether C Management and/or its employees charged or received any sum for or on account of any such costs, charges or expenses from the defendant in connection with procuring or obtaining the Loan.

130.  Issue 4 – whether the defendant is entitled under section 27(4) to set off the amounts of $120,000 and $1,880,000 against the amount actually lent.

131.  Issue 5 – whether the sum of $120,000 should be regarded as interest pursuant to section 2 on top of the contractual interest of $480,000.

132.  Issue 6 – what is the effective rate of interest of the Loan and whether it exceeds 60% per annum so as to render the Loan Agreement illegal and unenforceable under section 24(2)?

133.  Issue 7 – alternative to Issue 6, whether the transaction under the Loan Agreement should be reopened under section 25.

134.  Issue 8 – if the Loan Agreement is enforceable, what is the outstanding amount owed? 

DISCUSSION OF THE EVIDENCE

135.  The resolution of the factual disputes primarily turns on the credibility and reliability of the witnesses.  Ms Kwok refers me to Lee Sing Leung Robin v Luk Wing Kwong Quintin HCA 1890/2010, 13 August 2015 at paras 18 to 23 for the principles on how the court should tackle factual disputes.  I extract below some of the more relevant ones discussed there.

136.  The crucial considerations for the court include the inherent probability of the parties’ assertions, whether these assertions are consistent with the parties’ conduct and the contemporaneous documents, if any, and the credibility and demeanour of the witnesses. 

137.  It is essential to have regard to the entirety of a witness’s evidence.  Witnesses can make mistakes but the mistakes do not necessarily affect other parts of their evidence.  Likewise, witnesses regularly lie.  However, lies themselves do not mean necessarily that the entirety of that witness’s evidence is to be rejected. 

138.  A standard of proof commensurate with the seriousness of the allegation is required.  Inferences of fraud and serious misconduct are not to be reached by conjecture, nor on a mere balance of probabilities.  The inherent greater improbability of serious misconduct has also to be factored in, such that a party bearing the burden of proving the allegation should be required to do so with evidence of a commensurate cogency.

139.  I should start the discussion by pointing out the obvious fact that the material disputed events took place in mid-2018.  The trial took place almost five years later.  It would not be surprising if a witness was not able to recall the minute details of the events at the trial. Where there is a discrepancy or inconsistency within a witness’s testimony, the court should bear in mind the possibility that it is due to a genuine mistake in recounting the events accurately due to the long lapse of time.  The entirety of the witness’s evidence must be considered when determining his credibility.

140.  I should also say at the outset that there are many factual disputes on matters which have no material bearing on the credibility of the witnesses.  It would be unnecessary to deal with them in any detail in this judgment.

141.  For instance, the exact location of where the defendant signed the documents on 17 May 2018 is in dispute.  The plaintiff says that everything was signed in the conference room at PTFW’s office.  The defendant says that some was signed there but some others had been signed earlier at the small table near the glass door of the office.  The objective fact is that the defendant did sign the documents.  The further objective fact is that Sean Chan never entered into the office when the signing took place. And it is not the defendant’s case that Cyrus Chan or Lai knew that Sean Chan was standing outside the glass door.  For all these reasons, it is immaterial as to whose version is correct when it comes to exactly where the documents were signed.

142.  I would instead focus on the following matters which I consider to be material for the purpose of evaluating the parties’ factual cases.

The plaintiff’s evidence is on the whole coherent and largely consistent

143.  On the whole, I consider that the plaintiff’s evidence is coherent and largely consistent.  While there are some discrepancies, it is inherently plausible that such discrepancies have arisen as the witnesses may not have accurate memory of the events.  These events took place a few years ago.  It is understandable that their memories may have become blurred.  Furthermore, by reason of their positions, the plaintiff’s witnesses were likely to be involved in similar money lending transactions regularly interacting with multiple clients during the relevant period.  It is hence quite plausible if they cannot recall at all, or recall fully, the contents of one particular telephone conversation with the defendant which took place some years ago.

144.  Cyrus Chan and Leung are no longer working for the plaintiff.  Lai is no longer with PTFW.  There is therefore no apparent motive for them to give untrue testimony for the plaintiff in court.  In fact, Mr Chan accepts that Leung and Lai are credible witnesses.

145.  Mr Chan submits that Chang was extremely evasive in his oral testimony.  Being its sole director, he seemed to have very limited knowledge about the plaintiff.  Mr Chan argues that that is hard to believe. The major complaint about Chang’s testimony is that he made no mention at all in his written statements that the plaintiff used intermediaries in its business.  It was only revealed for the first time in cross-examination when the Sit Ka Man decision was cited to him.  Only then did he disclose that there were two teams within the plaintiff, with one team working with intermediaries and the other team handling online applicants. 

146.  According to the plaintiff’s case, the defendant was an online applicant, with no intermediary involved.  On the other hand, the defendant alleges that Sean Chan was acting together with the plaintiff in relation to the Loan.  Hence the issue of intermediary is a material one in this dispute.  Mr Chan’s complaint is that the omission of Chang to mention the role of intermediaries in its written evidence is therefore suspicious.

147.  However, in my view, such omission should be viewed against the entirety of the plaintiff’s case.  Its case is that the defendant’s application came in online and that for this type of applications, if an intermediary was involved or suspected to be involved, the plaintiff would not proceed further.  That is the crux of the plaintiff’s case.  Prima facie the fact that there was another team within the plaintiff handling referrals by intermediaries is not part of its case and is hence not relevant. Viewed that way, I consider that while the court should take into account Chang’s omission as part of the evaluation of his evidence, it does not cast significant doubt on his credibility as a whole.

148.  As for Cyrus Chan, Mr Chan highlights the mistake which he made about the duration of the 16 May 11.06am call.  He also highlights Cyrus Chan’s initial evidence that after 17 May 2018 he had no contact with the defendant until September of the same year.  That has now been proved wrong.  The call records reveal that there were three calls between him and the defendant in July 2018. 

149.  In respect of the first mistake, insofar as Mr Chan is suggesting that Cyrus Chan could not have said the things which he now alleges within 1 minute 54 seconds, I do not agree.  I consider that that is possible.  According to Cyrus Chan, how long the conversation would last would depend on whether the borrower had any question.  That is inherently believable. 

150.  As regards the second mistake, I bear in mind that the defendant must have been only one of the clients whom Cyrus Chan handled during his time with the plaintiff.  I consider it to be inherently plausible that the mistake is due to his inability to recall the details of some distant events, rather than a deliberate attempt to give false evidence.

151.  Mr Chan also highlights that the call records show that for the four days between 15 and 18 May 2018, there were 14, 27, 17 and 10 calls made to Cyrus Chan’s phones and the telephone numbers of those callers were not disclosed.  It is extremely unusual for anyone to receive so many calls with undisclosed number.  Mr Chan submits that it is very likely that some of these callers were intermediaries whose identity or phone number cannot be disclosed.  Furthermore, it would be too much of a coincidence that a caller with an undisclosed number called Cyrus Chan at 11.05am on 16 May 2018, just one minute before Cyrus Chan called the defendant. 

152.  In my view, these submissions are highly speculative. I do not give much weight to such speculations.

153.  Mr Chan also submits that there is no reason why the plaintiff would video record the signing of only some of the documents but not all.  He says that the sole purpose of the video recording was for the plaintiff to isolate itself from intermediaries by having the borrower say in front of camera that there was no intermediary involved. 

154.  I do not think that this submission advances the defendant’s case at all.  The plaintiff’s explanation on why only some of the documents would be video recorded is inherently plausible.

155.  Lastly, Mr Chan argues that Chang did not consider the repayment ability of the defendant when approving her loan and submits that the plaintiff was only chasing after her property. 

156.  To this, Chang explained that if the borrower’s monthly income was sufficient to cover the monthly instalment, he would consider the repayment ability to be satisfactory.  Also, the plaintiff would need to be satisfied with the loan-to-value ratio.  I do not consider there is anything inherently unbelievable about this alleged policy adopted by the plaintiff. 

157.  Overall speaking, while there are some mistakes made by Cyrus Chan in his evidence, these mistakes are likely to have been due to the lapse of time resulting in imprecise recollection.  On the whole, the plaintiff’s factual case, as revealed by the evidence of Chang, Cyrus Chan, Leung and Lai, is coherent and largely consistent.

The defendant’s evidence is tainted with extensive inconsistencies

158.  I find that the defendant’s evidence contains extensive inconsistencies.  She has not been able to put forward any credible explanation for them.  This has rendered her evidence unreliable.

159.  As mentioned at the outset, she has made four witness statements in this action and in her subsequent statements she made a number of corrections to her previous statements.  Furthermore, in her written closing submissions, Ms Kwok recites the instances where the defendant’s evidence has undergone substantial changes – from the first and second police statements taken in July 2018, the solicitors’ letter dated 24 October 2018, the re-amended defence, the four witness statements, and to her oral testimony.  Ms Kwok observes that the defendant’s memory of events appeared to have improved as time passed.

160.  It cannot be denied that there are many changes in the defendant’s account given at various stages.  Same as with the plaintiff’s witnesses, I must however give allowance to the fact that she is now trying to recall the details of events which took place some years ago. There are bound to be some mistakes even if she is trying to honestly recount the events.  However, in her case, the vast extent of the changes in her case and the manner in which the changes emerged cast grave doubt on the credibility of her case.  I would highlight the more material inconsistencies below.

161.  First, her evidence on when she was first told about the arrangement of the plaintiff retaining $120,000 to cover the first three monthly instalments has been inconsistent since 2018.  In 2018, her position was that she was told about the arrangement on 17 May 2018 after she received the cheques from Lai.  Then, later, in this action, she changed her position on this and said that Sean Chan told her about the arrangement on 16 May 2018 and she stressed that it was before her first contact with Cyrus Chan via the 16 May 11.06 call.  I reproduce the relevant evidence below.

162.  In the first police statement made in July 2018, she said:

“其後律師行女職員將有關貸款文件副本 (附件一) 給予我，並將兩張東亞銀行現金支票 (每張為港幣94萬元，兩張合共188萬元) 交予我，當我攞完兩張現金支票後就走咗出去問WP [ie Sean Chan] 點解兩張支票唔係合共港幣200萬元，WP當時想向我解釋我需要將港幣12萬元放於東亞銀行用作每個月繳付港幣4萬元 (合共三個月) 予“油田財務有限公司”作利息用途 …” (underline added)

163.  It was stated in the solicitors’ letter dated 24 October 2018 as follows:

“After the execution of the Documents, a cashier order of HK$940,000 … was handed to her by the same female staff of the Firm to our client. Our client was further informed by the same female staff that another HK$940,000 was directly deposited into her personal bank account in BEA and the remaining HK$120,000 would be held by the Firm as stakeholder for the first 3 payments of interests of the loan.”

164.  In her witness statement which was made in September 2019, she said that what she said in the first police statement was wrong.  She explained:

“因為在5月16日，陳尚文與本人見面時，向本人表示該港幣2,000,000元的臨時貸款是為了向東亞銀行申請港幣5,000,000元的低息貸款，由於該東亞銀行的低息貸款需要約一到三個月處理，因此會扣起港幣120,000元以作東亞銀行替本人清還首三個月的利息供款，所以本人並沒有在離開該律師行後，才問陳尚文為何兩張支票總共不是港幣2,000,000元。” (underline added)

165.  She further explained that when she made the statements to the police, she was very confused, scared and stressed and was in no mood to read the statements carefully.  That was why the contents of the police statements were not entirely correct.

166.  The second inconsistency concerns when she first signed the Guarantee Agreement.  In 2018, her position was that the Guarantee Agreement was signed on 17 May 2018 after she handed $1,880,000 in cash to Sean Chan.  Then, later, in this action, she changed her position on this and said that it was signed during her meeting with Sean Chan in the morning of 16 May 2018.

167.  In the first police statement made in July 2018, she said:

“隨即我將港幣現金188萬於東亞銀行門口交予WP，WP … 並向我出示一份協議書，協議書大致上係講述如果WP之公司如未能在一個月內，即2018年6月17日之前成功令東亞銀行批核我一個貸款額為港幣500萬元的循環貸款戶口的話，我就無需歸還向“油田財務有限公司”所貸款的港幣200萬元，我同WP於協議書上各自簽署後，WP就將協議書正本 (附件四) 交予我保管…” (underline added)

168.  It was stated in the solicitors’ letter dated 24 October 2018 as follows:

“Mr. Sean Chan told our client that C Management would enter into a contract with our client and guaranteed that C Management would keep the money and arrange the “Debt Consolidation Loan” service in BEA for our client.  As a result, our client then handed the total sum of HK$1,880,000 in cash to Mr. Sean Chan as per his request.  Thereafter, Mr. Sean Chan on behalf of C Management signed the 雙方保證協議書 with our client dated 17 May 2018 … outside the Main Branch of BEA, and acknowledged the receipt of HK$1,880,000.” (underline added)

169.  In her witness statement which was made in September 2019, she made the following correction:

“最後，我將港幣現金1,880,000元於東亞銀行門口交給陳尚文，陳尚文隨即向我出事一份已簽署的協議書，而不是當時簽署的。” (underline added)

170.  In cross-examination, when the inconsistencies in her evidence were pointed out to her, the defendant would generally say that her latest memory was correct as she remembered more and more of the details of the events subsequently as she went back to look at the documents of the case. In fact, she said in cross-examination that she did not read carefully what was stated in her earlier witness statements because she did not like reading and she tended to forget what she read.  But then she started to pay attention to the contents when it came to her later witness statements because she realised there was going to be legal proceedings.  Hence, she claimed that her latest version was the most accurate.

171.  Ms Kwok submits that this explanation is illogical and nonsensical.  I agree.  As a matter of common sense, if a witness is genuinely trying to give a true account of what had happened, he should have a better memory of an event closer in time to when it took place than later. But the defendant is saying that in her case it is the other way round.  It does not make sense.  Furthermore, her explanation also demonstrates an apparent lack of respect for telling the truth.  Each of her four witness statements is accompanied by a statement of truth signed by her.  Yet she admitted that she did not read her written statements carefully.  This puts in doubt the general reliability of her evidence.

172.  The defendant is a lady in her 60s.  From my observation, notwithstanding that she is no longer in her youth, she was able to understand the questions put to her in cross-examination and readily grasp their significance.  In re-examination, she was in fact able to recite the dates of the events mostly accurately.  So this is not a case where she put forward inconsistent cases out of confusion.

173.  The above two inconsistencies are significant. It will be recalled that as one of the grounds in support of the collusion allegation, the defendant relies on the similar terms appearing in the Guarantee Agreement and the Loan Agreement, including the retention arrangement. The defendant’s latest factual case is that Sean Chan told her about the retention and gave her the Guarantee Agreement in the morning of 16 May 2018 before the 16 May 11.06am call between her and Cyrus Chan.  Her argument is that before Cyrus Chan called her, Sean Chan already knew about the terms of the loan.  This must mean, the defendant argues, that the plaintiff and Sean Chan must all along have communicated with each other about her loan.

174.  Hence, the time when Sean Chan first told her about the retention arrangement and when the Guarantee Agreement was signed assumes significance in her case.  However, as shown above, her case has been starkly inconsistent on these issues since 2018. 

175.  The third glaring inconsistency which I would highlight is in relation to agency fees. 

176.  In her supplemental witness statement, she said:

“本人現補充，上述第10段有關港灣豪庭物業 [ie the Metro Harbour View property] 、尚悅物業[ie The Reach property]按揭貸款及旺角物業，每一次都均有中介的介紹和參與。而每一次成功向該些財務公司拿取貸款後，本人的公司都會支付中介費給介紹和參與的中介，而金額是不定的。本人的公司很樂意支付中介費是因為本人及2位生意夥伴以為跟樓宇買賣一樣，只要中介成功協助各方申請和批核貸款的話，中介就會收取中介費。另外，該些中介費連同該些財務公司的貸款利息對比國內的高利息借貸也便宜得多。中介費一般由港幣10,000元到40,000元不等。中介費都是本人於本人公司成功貸款後，本人先寫支票給中介指定的律師行，其後由本人公司歸還該中介費用給本人。因此，本人從陳尚文得知，比該律師行扣起貸款中的港幣120,000元，除了用來支付原告人臨時貸款首三個月的利息，直到獲批核港幣5,000,000元的東亞銀行低息貸款之外，也包括了原告人會支付給陳尚文的中介費。但本人想不到原告人是透過這一次貸款按揭把本人的麗都花園物業騙取的。” (underline added)

177.  In cross-examination, her evidence on the agency fees (中介費) was starkly different.  She said that she and ANBTL were never required to pay any agency fees and that the agency fees were always borne by the finance companies.  When she was asked where the figures of $10,000 and $40,000 (as stated in the above extract) came from, she claimed that she had once paid legal fee of $10,000 and stress test fee of $40,000.  She said that legal fee and stress test fee were different from agency fee in her understanding. 

178.  This inconsistency is difficult to understand. More importantly, what she said in oral testimony is opposite to what she said in her written statement.  There is simply no plausible explanation for that.

179.  Furthermore, as regards the retention of $120,000 in her written statement, in cross-examination, it was pointed out to her that given that the principal was $2,000,000 and the corresponding monthly interest was $40,000, there was simply no room for any agency fee to be included in the sum of $120,000 as a matter of calculation.  To this, the defendant said that Sean Chan told her that the monthly instalment had been increased to $40,000 to absorb the agency fee.  This still failed to answer the question.  When pressed on further, her answers became confusing.

180.  Plainly, her position on agency fees was incoherent. 

181.  The fourth significant inconsistency relates to her frame of mind about her liability under the Loan in June 2018.

182.  In her supplemental witness statement, she said that at that time, she was not worried about the Loan because under the Guarantee Agreement she was not liable to repay it:

“加上本人跟陳尚文簽署的該協議書提到如果思易未能在一個月內，即2018年6月17日之前幫助本人在東亞銀行成功申請港幣5,000,000元的東亞銀行低息貸款的話，本人就無需歸還該臨時貸款。… 由於本人跟陳尚文簽署了該協議書，本人當時並不擔心該臨時貸款還款責任一事。” (underline added)

183.  This is to be contrasted with her oral evidence.  She said that in her phone calls with Sean Chan on 21 and 22 June 2018, she repeatedly told him to “return the money to her” if he was not able to obtain the $5,000,000 loan.  This seems to suggest that she was indeed worried about her liability.  It was then pointed out to her that according to Sean Chan’s proposal, she was never required to repay anything in any event and she had no right to ask him to return the money to her.  She then changed her testimony and claimed that she might not have expressed herself clearly.  She suggested that the money should be returned to the plaintiff.

184.  Apart from the above significant inconsistencies, Ms Kwok highlights that the defendant’s own evidence shows that she was far from candid in how she dealt with her loan application with the plaintiff and her previous loan applications in general. 

185.  According to her own evidence, she readily acceded to Sean Chan’s suggestion that she should tell the plaintiff that no intermediary was involved when asked about it.  This was plainly a lie as it was Sean Chan who referred the defendant to the plaintiff. In her supplemental witness statement, she had this explanation:

“此外，本人每一次用本人的物業幫本人的公司向上述不同的財務公司借貸時，都均有中介的介紹和參與。而該些中介都跟本人說，當財務公司問本人貸款有沒有涉及第三方或中介時，千萬不要說有第三方或中介參與，因為如說有的話，財務公司是不會向本人批核貸款的。每次本人根據該些中介的指示，都成功向該些財務公司拿取借貸，因此本人以為這是借貸行業的慣常做法。本人以為這次亦不例外，只要跟着陳尚文的指示和陳進宏說這次貸款不涉及第三方或中介，本人便可以幫本人的公司成功得到原告人的臨時貸款批核，用作向東亞銀行申請港幣5,000,000元的東亞銀行低息貸款。”

186.  This demonstrates that she habitually lied about not engaging intermediaries when applying for loans from finance companies in the past.  She did not seem to have any issue about this.  Her only concern appeared to be whether she could successfully get hold of those loans for ANBTL and having to tell lies in order to achieve that did not appear to bother her at all.

187.  Worse still, in the present case, she followed Sean Chan’s suggestion and asked ANBTL to produce a false income proof hugely inflating her income so that Sean Chan could use this to obtain the loan for her.  Her own evidence shows that she was prepared to put forward untrue statement whenever it suited her purpose at the time.  All these put her credibility in a very bad light.

188.  Overall speaking, in light of the extensive inconsistencies in her evidence on material matters and her apparent willingness to make untrue statements to get what she wants, there is grave doubt over the credibility and reliability of her testimony given in this trial. 

FACTUAL FINDINGS

189.  In my view, on balance, the plaintiff’s evidence is more credible than the defendant’s.  I accept the plaintiff’s factual case as true.  At the same time, I am unable to find the evidence of the defendant as facts as I have found her evidence to be unreliable on the whole.  That would include her evidence on her dealings with Sean Chan and C Management. 

190.  In case of conflict, I prefer the plaintiff’s evidence to the defendant’s.

191.  More specifically, I find that on 15 May 2018, when the plaintiff received the online application bearing the defendant’s name, it was the first time the plaintiff came to know of the defendant.  Chang did a land search on that day and it was from that search that he found out about the joint tenancy of the Lido Garden property.  On 16 May 2018, Cyrus Chan gave a call to the defendant at 11.06am and the contents of the conversation are as alleged by him.  The plaintiff had obtained the defendant’s documents through the online platform and from the defendant herself when she visited PTFW’s office on 17 May 2018, and not from Sean Chan or C Management as suggested by the defendant.  At all material times, the plaintiff had no knowledge of, or involvement with, either C Management or Sean Chan in relation to the Loan.  After Lai released the two cheques to the defendant, the plaintiff had no knowledge as to how she dealt with the money.

192.  I have set out the grounds put forward by the defendant to support the allegation of collusion in paras 109 to 118 above. 

193.  The first and fourth grounds turn on whether the defendant’s evidence is to be accepted as true.  I have already found her evidence to be unreliable and would not make factual findings according to her case. More specifically, I do not find as fact that she had already been told about the retention arrangement or she had already been given the Guarantee Agreement to sign in the morning of 16 May 2018.  Those two grounds do not stand. 

194.  As for the other grounds, I have analysed the evidence of Chang and Cyrus Chan above.  I consider that their explanations to be generally credible.  See paras 36, 37 and 149 (the second ground), paras 23, 153 and 154 (the third ground), para 150 (the fifth ground) and para 28 (the sixth ground).  Those other grounds would therefore fail too. 

RULINGS ON THE ISSUES IN DISPUTE

195.  Based on the above factual findings, I now address the eight issues in dispute.

Issue 1

196.  On Issue 1, it is not disputed by the plaintiff that PTFW were acting for it in the loan transaction and that the law firm had retained the sum of $120,000 on its behalf in relation to the Loan.  Issue 1 should be answered in the affirmative.

197.  However, the plaintiff now accepts that that sum should not form part of the principal of the Loan.  It has reduced its claim for principal to $1,880,000. 

Issue 2

198.  I have found as facts above that the plaintiff did not know about C Management or Sean Chan and it had no dealings with them at the relevant time when the Loan was advanced and that the sum of $1,880,000 was indeed advanced to the defendant on 17 May 2018. 

199.  On this factual finding, Issue 2 must be answered in the negative, as it cannot be said that the plaintiff and C Management and/or Sean Chan were acting in concert and were playing the same game in relation to the Loan: see HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191 at paras 6 to 8, 11; Ever-Long Finance Ltd v Yeung Wah Leung [2017] 1 HKLRD 500 at para 90.  The alleged collusion is not made out on the facts.

Issues 3

200.  As there was no collusion, section 27(3) is not engaged.  Issue 3 is no longer applicable.

Issue 4

201.  As regards the sum of $120,000, the plaintiff is no longer claiming it.  Hence the issue of set-off does not arise.

202.  As regards the sum of $1,880,000, I have found that it was indeed advanced to the defendant under the Loan Agreement.  I have made no factual finding on how she dealt with the money afterwards.  However, even if it is true that she had passed on the whole sum to Sean Chan, since I have found that there was no collusion as alleged by her, Sean Chan and/or C Management did not receive the sum on behalf of the plaintiff.  Section 27(4) does not apply.  There should not be any set-off for this sum.

Issue 5

203.  I would answer the issue in the negative.  The sum of $120,000 should not be regarded as interest on top of the contractual interest of $480,000.

204.  Under section 2, “interest” is defined to “include any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan”.

205.  It is the defendant’s contention that the sum of $120,000 should be regarded as interest on top of the contractual interest of $480,000.  The plaintiff disagrees.  Ms Kwok submits that the amount withheld by PTFW formed part of the contractual interest.  Had the defendant fulfilled her contractual obligation under the Loan Agreement and made repayment in full, the amount “in excess of the principal” would have been $480,000 only.  The defendant’s contention that the sum of $120,000 is interest on top of the contractual interest amounts to double-counting and there is no basis for doing so.  

206.  I accept Ms Kwok’s submission. 

207.  One way of looking at the matter is to determine, first, the principal actually received by the defendant and, second, the amount she was liable to repay throughout the life of the Loan.  The difference between the two figures would be the “interest” under section 2.

208.  There is no dispute that she only received $1,880,000 from the Loan.  That would be the first figure.  The Loan Agreement stipulated that she had to repay 11 instalments of $40,000 each and a final instalment of $2,040,000.  That would come to a total of $2,480,000.  However, the sum of $120,000, which had been kept by the plaintiff, would be used to pay off part of that sum and would not have to come out of the defendant’s pocket. Hence, the total amount which she actually had to pay out throughout the life of the Loan, ie the second figure, would be $2,360,000 (ie $2,480,000 - $120,000).

209.  The difference between the first and second figures would therefore be $480,000.

210.  This is to be contrasted with the treatment of the upfront fee of $37,000 in Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831, [2020] HKCA 737 at paras 62 to 63. That upfront fee was deducted from the loan by the lender on day one and never went to the borrower in that case.  More importantly, unlike the sum of $120,000 here, the upfront fee was never intended to be used by the lender to settle any sum owed by the borrower.  And that was why in that case the upfront fee was counted as interest on top of the contractual interest.

211.  In this regard, it is notable that in Skyline Credit Ltd v Leung Hing Chung [2022] 4 HKLRD 561, [2022] HKCA 1241, the Court of Appeal held that “the three months’ interest of $49,680” kept by the lender in that case would be treated as interest on top of the contractual interest: see paras 14(3), 53 and 55.  The case would therefore appear to support Mr Chan’s position.  However, as pointed out by Ms Kwok, the judgment does not reveal why the three months’ interest would be in the sum of $49,680 when it would appear that on the facts it should be $124,200 (ie $41,400 x 3) instead: see para 11.  Hence I do not think that Skyline can be relied on to support Mr Chan’s position.

Issue 6

212.  By reason of the plaintiff’s concession, the principal of the Loan is now $1,880,000.  The interest payable by the defendant is $480,000.  Hence the effective rate of interest is 25.53% (ie $480,000/$1,880,000 x 100%).  It does not exceed 60%.  Section 24(2) therefore does not apply to render the Loan Agreement unenforceable. 

Issue 7

213.  I accept Ms Kwok’s submission that the loan transaction was not by any standard extortionate based on the above rulings and should not be reopened under section 25. 

214.  It is true, and the plaintiff accepts, that sections 18(2)(d) and (i) were not complied with, as the amount of the principal and the rate of interest were not correctly stated in the Memorandum.  There is also a dispute as to whether there was a breach of section 18(2)(j).  I do not find it necessary to rule on that.  But even if there was a breach under that subsection as well, the present situation is a far cry from what Mr Chan describes as a complete disregard of the Ordinance.

215.  On the facts, the sum of $1,880,000 was in fact advanced to the defendant by the plaintiff.  The breaches have not resulted in any prejudice to the defendant.  In the circumstances, the loan for the principal sum of $1,880,000 should be enforceable. 

Issue 8

216.  The outstanding amount of the principal is $1,880,000. 

217.  The plaintiff now claims that interest should accrue at the contractual rate of 24% per annum from the date on which it was advanced, ie 17 May 2018, up to payment in full.  In light of the express provision in clause (19) of the Loan Agreement (“whether are due before or after Judgment”), I hold that the contractual interest rate should continue to apply post-judgment: see Honip Credit Ltd v Asia Tea Export Co Ltd HCMP 399/2016 at para 21.

CONCLUSION

218.  For the above reasons, I order that judgment be entered against the defendant in the sum of $1,880,000 with interest accruing at 24% per annum from 17 May 2018 until payment in full.

219.  I make an order nisi that the plaintiff do have costs of the action, including all reserved costs, to be taxed on an indemnity basis if not agreed.  For the basis of taxation, see the express provision of the Loan Agreement reproduced in para 65 above.