ZHONGCAI FINANCE LTD v. TANG MAN TO HERMAN

HCMP 1137/2024

[2025] HKCFI 2636

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1137 OF 2024

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D E C I S I O N

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1.  I am dealing with an Order 88 originating summons taken out by the plaintiff as explained above. By way of procedural background, the matter first came before me on 27 March 2025 at 9.30 am. The parties had both appeared by counsel but there had been insufficient time to deal with the substantive argument. As the parties had already filed full skeleton submission and list of authorities, I enquired whether if the matter were to be adjourned whether any party wished to file additional skeleton or authorities. Both counsel confirmed they were content to rely on what they had already filed and confirmed that they would not seek to file further submissions. I therefore adjourned the matter before me for substantive argument to a date to be fixed.

2.  On 7 April 2025, a notice of hearing was fixed for today’s date before this court. At that time, the defendant still had solicitors on record, so he would have been aware of today’s hearing. On 16 May 2025, the defendant filed a notice to act in person and further by way of a letter, wished to vacate the hearing fixed for today on the basis that the property had been sold.

3.  On 19 May 2025, the plaintiff’s solicitors wrote back, copying the court stating, “We oppose the defendant’s application to vacate the hearing. Despite there had been a sale of the mortgaged property, the action is an action under both Order 84A and Order 88 of the RHC, in which the plaintiff, as a money lender, is also entitled to be heard for the purpose of obtaining a money judgment”.

4.  I enquired with Mr Tam this morning for the plaintiff whether or not the defendant had contacted the plaintiff’s solicitors further and he confirmed there were no further communications.

5.  Notwithstanding the defendant’s absence at today’s hearing, I am satisfied in all the circumstances it is appropriate and proper to proceed, especially as the defendant had the benefit of having counsel at the time, filed written submissions and authorities and confirmed there were no further matters that the defendant wishes to bring to the court’s attention in terms of the authorities or submissions.

Procedural Matters

6.  Before I go into the substance of the issue, I should first deal with the question of jurisdiction, this arises by reason of the defendant informing the court by way of the letter I mentioned earlier that the property had already been sold by an alleged first mortgagee. Order 28, rule 1 of the Rules of the High Court provides that the provisions of Order 28 apply to all originating summonses subject, in the case of originating summonses of any particular class, to any special provisions relating to the originating summonses of that class. One such particular class is mortgage actions within the meaning of Order 88 of the Rules of the High Court.

(i)  Order 88 applies to any action by a mortgagee or mortgagor or by any other person having the right to foreclose or redeem any mortgage, being an action in which there is a claim for, inter alia, claiming of money secured by the mortgage and delivery of possession to the mortgagee by the mortgagor (see Order 88, rule 1(a) and Order 88, rule 1(d).

(ii)  This is so even if the action includes other claims, such as guarantee claims. The fact that an Order 88 proceeding is engaged simply means that more protection is afforded to the mortgagor defendants. It does not exclude other claims that can be brought by originating summons, such as guarantee claims, see for example Hang Seng Bank Limited v Perfecta Dyeing, Printing & Weaving Works Limited and Others (unreported judgment dated 13 February 2009 at paragraph 39).

(iii)  Tat the purpose of Order 88 is to afford additional protection to mortgagors is also made clear by the Court of Appeal’s judgment in Wing Hang Bank Ltd v Kit Choy Development Ltd and Another [2005] 3 HKC 312 (at paragraph 12). These additional protections include the information required to be included in the mortgagee plaintiff’s affirmation in support of the proceedings (rule 5), and procedural rules that the plaintiff would have to comply with before it can apply for judgment in default (rules 4 and 6).

7.  Further, in respect of all originating summonses, Order 28, rule 4(1) provides:

“The court by whom an originating summons is heard may, if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established, make such order in favour of the plaintiff as the nature of the case may require, but where the court makes an order under this paragraph against a defendant who does not appear at the hearing, the order may be varied or revoked by a subsequent order of the court on such terms as it thinks just.”

8.  An originating summons can be disposed of summarily where the court is satisfied that there are no triable issues (see Bank of China (Hong Kong) Limited v Twin Profit Limited [2010] 2 HKLRD 1065 paragraph 6).

9.  One possible issue in the present case I have to deal with is whether as a judge could still deal with the matter when by the time of hearing the property in question has already been sold. In China State Bank Limited v Goboway Investment Limited and Others [2002] 1 HKC 566, the mortgaged property had been sold, and the mortgage discharged by a document of release after the filing of the originating summons (see paragraph 3). It was held that a claim for payment of debt which was formerly secured by a mortgage but is no longer so secured (for example when the mortgaged property has been sold but the proceeds of sale have been insufficient to discharge the debt in full) is no longer a mortgage action and is outside Order 88, such that a master has no jurisdiction to grant judgment on such originating summons (see paragraphs 9 and 13). In so doing, the court reasoned that:

(1)  The reference to mortgage in the phrase “secured by the mortgage” in Order 88, rule 1(a) is not a reference simply to the document but to the security. The action only remains a mortgage action so long as the monies claimed remain “secured by the mortgage” (see paragraphs 9 and 13).

(2)  This interpretation is supported by Order 88, rule 5 which relates to the evidence which must be adduced on affidavit in support of the originating summons. It anticipates that security provided by the mortgage is still subsisting at the time of the court’s determination (see paragraph 14 of judgment).

Accordingly, the court in the China State Bank held that master did not have jurisdiction to enter judgment under Order 88 or indeed Order 28.

10.  I also note that in Newnham v Brown [1996] 1 WLR 875, it was held that a second mortgagee who remains unpaid after sale of the property by the first mortgagee is no longer a “mortgagee” within the meaning of that term as used in the Rules of the Supreme Court (see Order 55, rule 5E of the English rules).

11.  In the present case I do not think there is any obstacle preventing me from determining whether the defendant is indeed indebted to the plaintiff, when as a judge of the Court of First Instance I have jurisdiction to deal with the originating summons under Order 28 in any event.

Analysis

12.  I now turn to the parties’ arguments as set out in the skeleton submissions. It would appear that the signing of the loan agreement dated 22 April 2024 and the second mortgage on the same day could not be seriously disputed. The defendant asserted an agency fee of HK$300,000 was paid to an individual called “Vincent” and this allegedly gave rise to some sort of defence under the Money Lenders Ordinance (MLO). The defendant’s factual evidence is that around the end of 2023, he received a cold call from someone called “Mia”, asking the defendant if he was interested in borrowing money. The defendant responded positively and allegedly this “Vincent” later contacted the defendant.

13.  In April 2024, the defendant asked Vincent for a HK$3 million loan and Vincent indeed arranged the same while charging the defendant a fee of HK$300,000 on the day of drawdown. On 22 April 2024, the defendant went to the plaintiff’s office and signed the documentation, a “cash cheque” of HK$1,368,527 was given to the defendant, and the defendant went to a bank to exchange the same for cash. He then allegedly gave HK$300,000 to one “Anson”, allegedly Vincent’s colleague.

14.  I am unable to come to the conclusion that defendant’s defence is reasonably arguable for at least the following reasons:

(i)  There is scant evidence in support of defendant’s case. One would have thought that a transfer of HK$300,000 would generate some kind of documentary evidence (such as receipt and/or text communication) which is conspicuously absent. The defendant’s assertion that this was due to his job as a bodyguard is not believable. And even if this job indeed did prevent him from producing evidence of his text communication via mobile phone, it would not have prevented him from keeping other records, such as hard copy records or handwritten records.

(ii)  The lack of evidence is particularly surprising when the defendant was apparently able to recite telephone numbers of various individuals. If the defendant was conscientiously enough to recall or remember those telephone numbers, one would have thought that he would have been sufficiently cautious and/or conscientious to also keep written records of the transfer of HK$300,000.

(iii)  While the plaintiff acknowledged the involvement of a third party, namely Kwan Fung Consultancy Limited, there is a confirmation to the effect that it has not received any charge.

(iv)  Lastly it would appear that the three cheques dated 22 April 2024 issued by the plaintiff including the cheque of HK$1,368,527 are crossed cheques. The plaintiff argues that the defendant would not be able to convert the cheque to cash and then pay HK$300,000 cash to Anson within the same day. However, the plaintiff has not adduced any evidence on how HSBC cleared or honoured a cross cheque, so I will rest my decision on the earlier points.

15.  Insofar as the defendant relies on three provisional SPAs, these allegedly dealing with the property does not give rise to any defence to the debt owed by the defendant to the plaintiff. In the circumstances, it is not necessary for me to consider whether they are technically sham or not. For those reasons, I take the view that the defendant was indebted to the plaintiff as claimed.