CHOI KWOK YUEN AND OTHERS v. MUI KOK KI

HCA 3012/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3012 OF 2015

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REASONS FOR DECISION

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1. This is the defendant's appeal against the summary judgment ordering him to repay a personal loan. At the end of the hearing, I dismissed the appeal with costs summarily assessed in the sum of $45,500 to be borne by the defendant. These are my reasons for decision.

Undisputed Facts

2. On 21 November 2014, one of the plaintiffs (“Kathy”) advanced a bridge loan of US$500,000 to the defendant, interest free. It was to be paid within December 2014. The defendant gave Kathy a note to confirm the borrowing for personal emergency reason (“the 1^st Agreement”).

3. The defendant defaulted in repayment. After various demands by Kathy, he gave the plaintiffs another note dated 29 April 2015 (“the 2^nd Agreement”) in these term:

“I, MUI Kok Ki … hereby confirm having borrowed USD500,000.00 from the following lenders on 21 November 2014 via bank remittance from their bank account at ANZ Bank, HK Branch ... to my company's HSBC account, Chinaplus Wines Limited …

1. YOUNG Sin Ling Kathy… 2. CHOI Kwok Yuen … 3. CHOI Sing Hin

I hereby confirm to repay total HKD 4,500,000 to the above lenders on or before the 31 July 2015.”

4. The defendant defaulted in repayment again. The plaintiffs commenced the present action on 18 December 2015.

5. The issues in this appeal were:

(1)   Whether the 2^nd agreement was a new agreement that superseded the 1^st;

(2)   Whether the period of interest was calculated from 1 January 2015 (on the plaintiffs’ case) or 29 April 2015 (on the defendant's case);

(3)   Whether the effective interest rate for the loan was in breach of the Money Lenders Ordinance, Cap.163 (“the Ordinance”).

Legal principles

6. An appeal from a master to a judge in chambers is conducted by way of rehearing.

7. For a summary judgment application, a defendant must show that there are triable issues and satisfy the court that he has a real and bone fide defence. The test is whether the defendant's assertions are believable in the context of the undisputed or indisputable background. The court should not conduct a mini trial on affidavits. Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, summary judgment should not be granted.  Hong Kong Civil Procedure 2016 Vol 1, paragraphs 14/4/2, 4, 8, 9, 10, 11, 12.

Whether the 2^nd agreement was a new agreement?

8. It was the defendant's case that the 2^nd agreement was a new agreement entered into by different contracting parties with different interest arrangements and that it superseded the 1^st. 

9. Mr Yu, counsel for the defendant, relied on Chitty on Contracts, 32^nd  edition (2015), Vol 1, §22-028 that:

“Substituted contract. A rescission of the contract will also be implied where the parties have effected such an alteration of its terms as to substitute a new contract in its place. The question whether a rescission has been effected is frequently one of considerable difficulty, for it is necessary to distinguish a rescission of the contract from a variation which merely qualifies the existing rights and obligations. If a rescission is effected the contract is extinguished; if only a variation, it continues to exist in an altered form. The decision on this point will depend on the intention of the parties to be gathered from an examination of the terms of the subsequent agreement and from all the surrounding circumstances. Rescission will be presumed when the parties enter into a new agreement which is entirely inconsistent with the old, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it.”

10. Even assuming that the 2^nd agreement was a new agreement, I was unable to agree that it superseded 1^st. The 2^nd agreement expressly referred to the former loan. No money changed hands on 29 April 2015. The three names stated as lenders were in fact, as acknowledged by the defendant expressly, account holders of the ANZ Bank. The 1^st agreement was expressly incorporated by reference in the 2^nd. Far from rescinding the 1^st agreement or being inconsistent with it, the 2^nd agreement continued the 1^st on supplemental terms.

Whether the interest was computed from 1 January 2015 or 29 April 2015?

11. The 2^nd agreement was silent as to the period for which interest was granted. Mr Yu relies on the demand letter from the plaintiffs’ solicitors dated 10 November 2015 to the defendant which stated that "on or about 29 April 2015, in consideration of our client granting further time for you to repay the said loan of US$500,000, you undertook orally to repay a sum of HK$4,500,000to our client on or before 31 July 2015." Mr Yu submits that since "further time" was granted on 29 April 2015 and evidenced in writing, it could only be construed to mean the period from 29 April to 31 July 2015 only.

12. I am unable to agree. Applying Chitty, the terms of the 2^nd agreement and all the surrounding circumstances were examined. Before 29 April 2015, Kathy had never agreed to any other date of repayment apart from December 2014.  The undisputed apps messages between her and the defendant from January 2015 disclosed that Kathy was not content to grant indulgence of time for free. She had threatened legal action. She had asked for a guarantee from the defendant and his wife, which was turned down. Although the rate was not specified, she had asked for interest "during this period", which could only mean the period for which the loan remained outstanding. She had complained about the defendant's lack of "remedy action to compensate the lender" and that a one-week loan became almost a 5-month loan by the apps message dated 13 April 2015. The interest of HK$652,250 (HK$4,500,000 - USD500,000 x HK$7.6955) came in the form of a lump sum proposed by the defendant.

13. Therefore, although the 2^nd agreement was dated 29 April 2015, the context showed clearly that the parties’ intention was to compensate the plaintiffs for being kept out of the money from January 2015.

14. In response to the plaintiffs’ demand letter, the defendant never raised the issue of contravention of the Ordinance. The issue on the period for which the agreed interest was to cover was clearly an afterthought on the part of the defendant. It has no merits.

Whether the interest was in breach of the Ordinance

15. Undersection 24 of the Ordinance, no agreement for the repayment of any loan or for the payment of interest on any loan shall be enforceable where the effective rate of interest exceeds 60%.

16. The defendant’s computation of interest, from 29 April 2015, was at a rate of 64.92% per annum. The plaintiffs' computation, from 1 January 2015, was 26.61%.

17. Mr Yu accepted, in my view correctly, that if this court were to find against his client on the first two issues, the third issue falls away.

Conclusion

18. Even if the 2^nd agreement was a new agreement, it did not supersede the 1^st. In the context of the discussion between Kathy and the defendant, the parties' intention was for interest to cover the period from 1 January 2015 when the defendant first defaulted in repayment to 31 July 2015. The interest which was set out in the 2^nd agreement was not at a rate in contravention of the Ordinance. The defence was moonshine. None of the issues were triable. I therefore dismissed the appeal.

19. I thank counsel for their assistance.