HAO TIAN FINANCE CO LTD v. HUNG YUK MING AND ANOTHER

HCMP 2729/2015

[2020] HKCFI 465

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2729 OF 2015

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J U D G M E N T

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INTRODUCTION

1.  This is the trial of the action. 

2.  The Plaintiff is and was at all material times licensed as a money lender under the Money Lenders Ordinance, Cap 163 (“MLO”).

3.  The Defendants are a married couple and the registered owners of the property situated at Flat H, 13^th Floor, Gillies Mansion, 27, 29, 31, 33, 35 and 37 Gillies Avenue, 67 and 69 Baker Street, and 20 and 22 Cooke Street, Hung Hom, Hong Kong (“Property”).  They claim to have retired and were at the material time financially supported by their children.  At the material time ie 2015, the Defendants’ 3 sons were 53, 47 and 45 years old while their daughter was 51 years old.

4.  The Defendants also claim that apart from a sum of HK$105,419 received by the 2^nd Defendant as commission/rebate from Total Swiss International Group Limited (“Total Swiss”) in 2014-15 for introducing her friends to purchase Total Swiss’ products, they had no income at all.  The 1^st Defendant was said to be a speculator of gold and had obtained from United Asia Finance Limited (“UA”) a HK$200,000 mortgage loan in 2012 for that purpose.  The mortgage loan was increased to HK$450,000 (“UA Loan”) by July 2014.

5.  The Plaintiff’s claim is a straightforward one for the recovery of a HK$3 million loan (“Loan”) together with interest on the unpaid principal sum at the rate of 18% p.a. pursuant to a loan agreement dated 5 June 2015 (“Loan Agreement”) and secured by a mortgage dated 5 June 2015 over the Property (“Mortgage”).  The Plaintiff also claims for an Order for the delivery of vacant possession of the Property. 

6.  There is no dispute that the Defendants signed the Loan Agreement which contained a memorandum (“Memorandum”) and a repayment schedule (“Repayment Schedule”), all in Chinese and English, and the Mortgage.  While there is a pleaded factual assertion by the Defendants that the documents were not explained to them at the time of signing, they have not run any case of vitiating factors as their legal defence.  The Plaintiff is thus content to rely on the well-known principles stated in Ming Shiu Chung & Others v Ming Shiu Sum & Others (2006) 9 HKCFAR 334 at [83]-[87] in order to hold the Defendants to what they had chosen to sign.

7.  In summary, the Defendants have pleaded 2 defences and hence there are 2 main issues which call for this court’s adjudication:

(1)  Whether there was collusion between the Plaintiff and an intermediary viz Tophill International Account Affairs Limited (“Tophill”) to deceive the Defendants into entering into the Loan Agreement and the Mortgage and to charge them sums of money for procuring the Loan and, if yes, what are the legal consequences of such collusion under the MLO (“Issue 1”).

(2)  Whether the Plaintiff and/or any provisions of the Loan Agreement have contravened the MLO and, if yes, whether such contravention(s) will render the Loan unenforceable (“Issue 2”).

8.  At trial, the Plaintiff called 2 witnesses: (i) Mr Lau Chi Hang (“Keith Lau”) a manager of the Plaintiff at the material time[1] who handled the Defendants’ loan application; and (ii) Mr Chan Hoi Hin (“Calvin Chan”), a clerk at the law firm Au, Thong & Tsang (“ATT”), who met with the Defendants on 5 June 2015 at ATT’s office, handled the loan documentation and the issue of cheques to the Defendants.

9.  The Defendants called the 2^nd Defendant as their only witness.

10.  This court has carefully considered the testimony, as well as the demeanour, of all witnesses, and assessed it against the documentary evidence and the known and undisputed circumstances of this case.  This court has in particular considered the inherent probabilities or otherwise of the witnesses’ testimony and assessed their credibility accordingly in order to resolve the material factual disputes between the parties.

DELIBERATION

Issue 1—Collusion

The law

11.  This court shall start with the relevant provisions of the MLO.

12.  Section 24 provides:

“(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).”

13.  “Interest” is defined in section 2 as not including “any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid includes 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”. 

14.  Section 27(3) and (4) provide:

“(3) Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.

(4) If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.”

15.  Section 29(10) provides:

“(10) Any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender who charges, recovers or receives any sum as for or on account of any costs, charges or expenses (other than stamp duties or similar charges) referred to in section 27(3) or demands or receives any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof commits an offence.”

16.  In Skyline Credit Limited v Leung Hing Chung [2019] HKCFI 169, a money lender’s action for the recovery of a loan advanced by the plaintiff as lender to the defendant as borrower pursuant to a loan agreement, DHCJ William Wong SC had the opportunity to review the legal principles in relation to collusion in a similar context as the present action.  The defendant’s primary case was that the plaintiff, Lamto and Worldwide colluded together to charge or receive interest or remuneration or reward in the form of security money, insurance premium, share of repayment, administrative fee and handling fee from the defendant in contravention of sections 2, 24(1), 27(3) and 29(10) of MLO.  By reason of such collusion, the effective rate of interest that the plaintiff charged the defendant well exceeded 60% p.a..  As such, the loan agreement was unenforceable under sections 24(1) and (2) of MLO.  According to the learned Deputy Judge, the key factual issue in that case was whether there was collusion between Lamto and the plaintiff in procuring and/or causing the defendant to enter into the loan agreement.

17.  At [36] to [39], the learned Deputy Judge reviewed the law on collusion as follows: 

“Legal Principles in relation to Collusion

36. As in the case of conspiracy, one seldom has direct evidence of collusion. What the court needs to be satisfied is that, from the evidence, the parties were acting in concert and playing the same game. The court is entitled to rely on overt acts of the parties involved and established facts to draw inferences in order to make a finding of collusion.

37. In HKSAR v Wong Kwok Wai (2013) HKCFAR 191, Tang PJ at §11 said:

‘11. I agree. On such a charge, the question to ask and answer is whether the persons who are said to have acted in collusion were playing the same game. It should not be made more complicated.’

38. Bokhary NPJ at §§6-8 said:

‘6. The conviction was based on two irresistible inferences: firstly, that all the persons and companies who dealt with the borrower were acting in concert and, secondly, that the applicant was colluding with a money lender in the making of the demand for $3,600.

7. It was open to the Magistrate to conclude, as he in effect did, that the demand was part of a dishonest and surreptitious enterprise which was meant to – and did – extract money from the borrower.

8. The points of law said on the applicant’s behalf to arise go to the meaning of collusion. No such point really arises. It is plain in the circumstances that the applicant and the moneylender were acting in concert and surreptitiously in a dishonest enterprise to extract money from a victim. Whatever else may or may not be within the meaning of ‘collusion’ under s.29(10), the applicant and the moneylender’s conduct certainly is fairly and squarely within that meaning.’

39. In Famous Zone Electronics Ltd v Hongkong and Shanghai Banking Corp Ltd [1998] 3 HKC 723, Sakhrani J. at 727F-G said:

‘It is plain that collusion as used in O 17 does not necessarily connote anything sinister on the part of the applicant. In Mureietta v South American etc Co Ltd (1893) 62 LJQB 396 it was held that collusion in the sense in which it is used in the Order does not necessarily involve anything morally wrong. As Wills J said at 397:

Colluding may be said to be an equivalent for playing the same game.’” (emphasis added)

18.  At [40], the learned Deputy Judge also quoted extensively from Ever-Long Finance Ltd v Yeung Wah Leung [2017] 1 HKLRD 500, a decision of Deputy Judge Simon Ho.  For my part, it would seem only necessary to recite what Deputy Judge Ho said as follows:

“86. The word ‘collusion’ under s.27(3) and (4) of MLO would no doubt need to be construed in its own statutory context against the whole of the Ordinance with its objective and intent in mind. One key purpose of MLO is clearly to protect the borrower from having to borrow money from others at excessive or extortionate interest rates. If one lends or offers to lend at an effective rate of interest exceeding 60% per annum (as specified in s.24) would commit an offence, and the loan agreement together with any collateral security would become illegal and unenforceable irrespective of whether the lender is a money lender or not. Section 25 is also enacted to protect a borrower from being subject to an extortionate loan transaction ...

87. The long title of the Ordinance also expressly provides that:

To provide for the control and regulation of money lenders and money-lending transactions, the appointment of a Registrar of Money Lenders and the licensing of persons carrying on business as money lenders; to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans; to provide for offences and for matters connected with or incidental to the foregoing; and to repeal the Money-lenders Ordinance 1911 (Emphasis supplied.)

88. Given the above proper perspective, it is clear to me that the purpose and design of s.27(3) and (4) is chiefly to prevent the aforesaid statutory protection afforded to a borrower from being stripped away or otherwise compromised by not only the money lender but also by any other related persons as mentioned therein in receiving costs, charges, expenses (other than stamp duties or similar charges), remuneration or reward from the borrower in addition to the interest charged by the money lender. Just like interest, these various sums (irrespective of whatever label given) are essentially the borrower’s costs of borrowing from the money lender.

...

90. ... In my view, to qualify as the collusion under s.27(3) and (4), it would be sufficient for such person and the money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. I take this to be the essence of the term ‘collusion’ as appeared in s.27(3) and (4) to meet with the statutory intent and purpose, and in accordance with the test of ‘playing the same game’ as expressed by Tang PJ in Wong Kwok Wai.

91. Mr Lau contends that ‘collusion’ here means ‘conspiracy’, and the defendant must demonstrate there had been a prior agreement between the moneylender and the financial intermediary (ie Hong Kong Construction in this case) to extract the consultancy fee from him. Mr Lau further submits that no evidence of such agreement can be discerned from Bonnie’s affirmation.

92. With respect, I do not accept such submission because ‘collusion’ in the statutory context of the MLO is in my view a wider concept than ‘conspiracy’. ...

93. The conventional usage of ‘collusion’ does not appear to be so confined as Mr Lau contends either. It seems to me that the natural and ordinary meaning of the term ‘collusion’ under s.27(3) and (4) is broad enough to cover ‘co-operation between parties to deceive or otherwise to do harm to others’.” (emphasis added)

The Defendants’ case

19.  A most unique aspect of the Defendants’ factual case is that the Defendants were allegedly the victims of not one, but two successive scams devised by two different intermediaries colluding with two different finance companies: the first one being King Fung[2] and Maxcolm[3] while the second one being Tophill who allegedly colluded with the Plaintiff.  In paragraph 31 of the Re-Re-Amended Defence, the Defendants pleaded this:

“31. The Defendants therefore suspected that they had been deceived by King Fung, Maxcolm, Tophill and the Plaintiff and reported the case to the police. The case is currently under police investigation under report numbers KW RN 15000519 (in respect of King Fung and Maxcolm) and KW RN 15000422 (in respect of Tophill and the Plaintiff).”

20.  Further, the modus operandi of the 2 scams were strikingly similar.  On the Defendants’ case, within 1 month after the 1^st scam, they fell for the 2^nd one.  Third, the scams were so improbable as to verge on it being ridiculous for anyone, however elderly, ignorant and gullible, to fall for them.  This is particularly so when the Defendants have 4 children who were in their 40s and 50s.  Even if the Defendants were ignorant and gullible, which this court does not find they are, there is no suggestion that their children were. 

21.  The Defendants’ factual case is supported by the testimony of the 2^nd Defendant alone.  In this court’s view, her testimony gives a highly convoluted and, regrettably, contrived story.  Importantly, certain crucial aspects of her testimony are contradicted by contemporaneous documents which are either unchallenged or unchallengeable.

22.  This court shall endeavor to give a summary of the 2^nd Defendant’s testimony and explain why it finds the testimony wholly unbelievable and fails to support their case of collusion against the Plaintiff.

23.  To begin with, in early April 2015, the Defendants were said to be indebted as follows:

(1)  The UA Loan of HK$450,000, with an outstanding balance of around HK$410,000; and

(2)  A total of around HK$160,000 under the 2^nd Defendant’s credit cards (“Credit Card Debts”).

24.  At that time, in order to avoid further escalation of the 2^nd Defendant’s Credit Card Debts, the Defendants decided to borrow HK$160,000 to completely pay them off.  They thus decided to apply to UA.  However, due to their old age and UA was worried that they had no capability to repay, the application was rejected. 

25.  In fact, the 2^nd Defendant under-reported her Credit Card Debts.  According to a TransUnion Limited’s personal credit report of the 2^nd Defendant dated 1 June 2015, her largest credit card debt, as at 30 April 2015, was owed to HSBC in the sum of HK$198,855.  This was not mentioned in her witness statement or what if anything had happened to it. 

1^st Scam—King Fung and Maxcolm: the Maxcolm Loan

26.  On 21 April 2015, a man holding himself out as a staff of HSBC called the 2^nd Defendant to promote a low-interest loan.  When the 2^nd Defendant expressed interest, the man asked her to go to 10^th Floor, Eu Yan Sang Tower, 11-15 Chatham Road South, Tsim Sha Tsui, to discuss the loan details.

27.  That afternoon, the 2^nd Defendant attended the above address which she noticed from the signboard to be the office of one景峰國際企業(香港)有限公司ie King Fung International Enterprise (HK) Limited (“King Fung”).  She met a Mr Kan in the conference room.  The 2^nd Defendant told this Mr Kan the Defendants’ debt situation.  Mr Kan then came up with a loan proposal which the 2^nd Defendant accepted.  The proposal was that the Defendants should first borrow a loan of HK$1.1 million from a finance company to repay the UA Loan and Credit Card Debts, and repay the first 5 instalments of that HK$1.1 million loan, each instalment being around HK$35,000.  Afterwards, King Fung would transfer the HK$1.1 million loan to HSBC for a low interest rate loan with monthly instalment of HK$7,766.  Mr Kan said that the HK$1.1 million loan was an intermediate process for obtaining a low interest rate loan from HSBC and it was temporary in nature.  However, Mr Kan did not explain why the Defendants needed to borrow HK$1.1 million when their total debts were only HK$570,000 and the 5 instalments added up only to HK$175,000.  Nevertheless, the 2^nd Defendant accepted it.

28.  In late April 2015, the Defendants attended King Fung’s office.  They passed a credit rating report of the 1^st Defendant to Mr Kan and signed a number of documents as requested without any explanation of their contents from him.  The Defendants said they thought King Fung was a company referred by HSBC and therefore trusted King Fung and signed the documents without reading them carefully.

29.  In early May 2015, Mr Kan told the 2^nd Defendant that a company named 尚誠融資有限公司ie Maxcolm Finance Limited (“Maxcolm”) would provide the HK$1.1 million loan and asked the Defendants to meet a male staff member of King Fung at Central MTR station on 4 May 2015 who would bring them to sign the loan documents.  On 4 May 2015, the Defendants did as instructed.  They met a man who claimed to be an employee of King Fung and brought them to Room 1501, 15^th Floor, Wheelock House, Central, allegedly the office of Maxcolm.  They met a Mr Cheung of Maxcolm and signed a number of documents as requested by him without questioning or any explanation of their contents by him.  Although they did not understand the meaning of the documents, they did so as they trusted King Fung and thought the documents were necessary for obtaining the HK$1.1 million loan.

30.  After the Defendants left the office of Maxcolm, the King Fung employee brought the Defendants to another office.  They met another man in a conference room who gave them many documents to sign without explanation.  The Defendants did so without question even though they did not understand their meaning.  After they had signed the documents, the male gave them 2 cheques of HK$550,000 each payable to the 1^st and the 2^nd Defendants respectively. 

31.  Afterwards, the Defendants cashed the 2 cheques at the request of the King Fung employee and went back to King Fung’s office.  The Defendants met Mr Kan and gave him the HK$1.1 million at his request. Mr Kan then gave HK$380,000 back to the 2^nd Defendant and told her to use the money to repay part of the Credit Card Debts only viz HK$97,000 to AIG and HK$40,000 to Hang Seng Bank, and to repay the first five instalments to Maxcolm.  Mr Kan also asked her to deposit HK$14,000 into her HSBC account each month for the next three months in order to improve her credit rating.  Mr Kan then asked the Defendants to sign an English document without explaining its contents.  They only noticed the figure of “$720,000” on the document but again signed it without question.  Mr Kan then mentioned an additional HK$500,000 would be borrowed to repay the UA Loan. The Defendants said they were confused at that time and asked Mr Kan what the total amount borrowed from Maxcolm was, to which Mr Kan requested them not to ask and not to mention the Maxcolm loan to other people.  The Defendants said they dared not ask further and just left.

32.  The 2^nd Defendant said she later found out the document in question was a receipt issued by King Fung for consultancy fee of HK$720,000.  The 2^nd Defendant also said the Defendants later discovered that the Maxcolm loan was for HK$1.6 million (“Maxcolm Loan”) instead of HK$1.1 million and, from the land search record, a mortgage in the sum of HK$3.3 million in favor of Maxcolm had been registered against the Property (“Maxcolm Mortgage”).  The Defendants said they did not know and would never have agreed to this mortgage.

33.  Out of the HK$1.6 million, HK$720,000 was charged by King Fung as consultancy fee.  HK$500,000 was used to repay the UA Loan with the balance of HK$65,933.20 refunded to the Defendants.  The Defendants received only HK$380,000 in cash, out of which the 2^nd Defendant used about HK$140,000[4] to repay part of the Credit Card Debts and HK$175,000 to pay the 5 instalments to Maxcolm.

34.  Pausing here, it seems to this court that the inherent improbability of this part of the Defendants’ case is obvious.  The reasons are numerous but suffice it to mention the following.

35.  First, the Defendants said they only wanted to borrow HK$160,000 to clear the Credit Card Debts.  In the end, they knew and agreed to borrow HK$1.1 million (but not HK$1.6 million) from Maxcolm for no obvious reason.  Even if the Defendants had somehow been persuaded by Mr Kan to borrow more to discharge the UA Loan as well, they would still only need around HK$570,000, plus the 5 instalments which added up to HK$175,000, not HK$1.1 million.  Further, Mr Kan did not explain why the original monthly instalment of HK$35,000 charged by a finance company could subsequently be reduced to HK$7,766 after the transfer to HSBC.

36.  Second, the Defendants said they first tried to borrow that HK$160,000 from UA, which was then the mortgagee of the Property under the UA Loan.  Even UA, a secured creditor, was unwilling to lend that relatively small sum to them.  Why did the Defendants think other finance companies, let alone HSBC, would be willing to lend HK$1.1 million to them when the Property had already been mortgaged to UA? 

37.  Third, if the Defendants knew and agreed to borrow HK$1.1 million from Maxcolm, they should receive HK$1.1 million. They did receive HK$1.1 million from Maxcolm but they immediately gave it back to Mr Kan who then curiously gave back HK$380,000 to the 2^nd Defendant.  Inexplicably, the Defendants did what Mr Kan told them to do.  In the end, apart from the HK$380,000, the Defendants only received a refund of merely HK$65,933.20.  And out of the HK$380,000, after paying some Credit Card Debts and the 5 instalments, the Defendants were left with less than HK$70,000.

38.  It is just completely beyond belief that 2 adults would agree to borrow HK$1.1 million (when in fact they borrowed HK$1.6 million) but were content to end up with around HK$135,000 in their pocket without having their eyes wide open and knowing what they have committed themselves to.

39.  In this regard, one should note that the Defendants, or at least the 1^st Defendant, is no stranger to borrowing money on the security of the Property.  Just from looking at the land search record of the Property, one can see that the 1^st Defendant had obtained a mortgage loan from the Hong Kong Building and Loan Agency Limited in 1983 and a loan secured by a legal charge from Kwangtung Provincial Bank in 1985.  Both Defendants had obtained a mortgage loan from UA in 2012 and signed a loan agreement with UA and a mortgage of the Property at a solicitors’ firm K Y Leung & Carina Chen.

40.  Fourth, on the Defendants’ account, they came into contact with King Fung and this mysterious Mr Kan only as a result of a cold call from someone who claimed to be a staff of HSBC.  There was no previous dealing between them and Mr Kan or King Fung.  Why should they be so trusting of Mr Kan as to do everything exactly as he told them to do, including giving him HK$1.1 million cash they received from Maxcolm?  Who in their right mind would hand over that kind of cash to a stranger when they themselves were indebted to the tune of around HK$570,000? 

41.  Lastly and most importantly the Defendants (together with one of their sons, 洪晉福) had signed the following documents which show they knew exactly that they had borrowed HK$1.6 million from Maxcolm and that they had mortgaged the Property to Maxcolm as security for a maximum loan of HK$3.3 million:

(1)  A Chinese loan agreement with Maxcolm dated 4 May 2015 as well as a repayment schedule which stated the loan was in the sum of HK$1.6 million with interest at 28.8% p.a..  The loan agreement also referred to the Property as security for the loan.

(2)  An undated letter in Chinese which shows the Defendants’ agreement to mortgage the Property to Maxcolm as security for a loan up to the maximum amount of HK$3.3 million and that the loan was released on 20 May 2015.

(3)  The Maxcolm Mortgage dated 4 May 2015, which albeit in English, contained the following acknowledgment in Chinese:

“ 本人／我們等，借款人，在此承認蕭温梁律師事務所已通知本人／我們等他們只是代表此述的貸款人。此按揭書的內容已由蕭温梁律師事務所翻譯及解釋給本人／我們等知悉，而他們已向本人／我們等說明簽署本按揭書的風險而已建議本人／我們等應就本按揭書的內容及按揭書尋求獨立之法律意見。本人／我們等現確認本人／我們等已完全明白此按揭書及蕭温梁律師事務所所給予的意見，盡管本人／我們等已被給予充足機會，但本人／我們等並不覺得需要獨立之法律意見。”

2^nd Scam—Tophill and the Plaintiff: the Loan

42.  On or about 30 May 2015, the 2^nd Defendant received a phone call from a Miss Cheung who claimed to be an employee of Tophill.  Miss Cheung told the 2^nd Defendant that King Fung was a fraudulent company with no business license and had stolen Tophill’s clients information to deceive others.  Nevertheless, Tophill could help the Defendants to get back the money which King Fung had deceived from them which the 2^nd Defendant understood to mean the consultancy fee of HK$720,000.  Miss Cheung then said that Tophill had successfully helped a lot of such similar cases.  The 2^nd Defendant said she felt Miss Cheung could help the Defendants get back the HK$720,000 and decided to attend Tophill’s office for further information.

43.  Pausing here, to start with, it is not the Defendants’ case that they had been Tophill’s clients so King Fung could not have stolen the Defendants’ information from Tophill in order to deceive them.  Second, there is no explanation as to how Miss Cheung would know the Defendants had been deceived by King Fung and the 2^nd Defendant never said she had queried Miss Cheung about it.  Third, the 2^nd Defendant never explained why she felt Miss Cheung could help the Defendants get back the HK$720,000, given Miss Cheung was a complete stranger and their first encounter was simply a cold call from her.  If the Defendants had found out by 30 May 2015 they had lost HK$720,000 as a result of King Fung’s deception and needed help to get back their money, the more natural thing to do would be to immediately report the matter to the police instead of relying on the promises of a stranger.  Instead, the Defendants waited until November 2015 before they reported to the police that they had lost HK$720,000.  Lastly, the Defendants did not just lose HK$720,000 as a result of the 1^st Scam. They had also been deceived into granting the Maxcolm Mortgage to cover HK$3.3 million which had been registered against the Property.  The Defendants said they did not know and would never have agreed to this mortgage.  Again, the natural thing would be to report the matter to the police and/or try to set it aside with professional help immediately.  Instead, the Defendants did not appear to be too concerned about the Maxcolm Mortgage and just focused on the HK$720,000.

44.  On 1 June 2015, the 2^nd Defendant attended Tophill’s office in Tsim Sha Tsui.  She met a woman who claimed to be Miss Cheung and a man who claimed to be Mr Fung, both of Tophill.  Mr Fung said if the Defendants were willing to borrow a further loan of HK$1.5 million and pay a monthly instalment of interest in the sum of HK$54,000 for 3 months, Tophill would assist them to get back HK$720,000 from King Fung.  That mortgage loan of HK$1.5 million would subsequently be replaced by another mortgage loan which only required a monthly instalment payment of HK$9,800.  Mr Fung did not explain why the need to borrow such a large sum of money, which company the mortgage would subsequently be transferred to or why the monthly instalment could be subsequently reduced to HK$9,800 after the transfer.  Curiously, the 2^nd Defendant did not ask either.

45.  Mr Fung further asked the 2^nd Defendant to pay HK$140,000 to Tophill first so that it could immediately start working. The 2^nd Defendant agreed and immediately went to a nearby HSBC branch to withdraw HK$140,000 in cash and gave it to Mr Fung at Tophill’s office.

46.  Afterwards, the 2^nd Defendant met the 1^st Defendant at Tsim Sha Tsui ferry pier and they returned to Tophill’s office after obtaining the 1^st Defendant’s latest credit rating.  In the office, Mr Fung required them to sign an authorisation letter to enable Tophill to assist in applying for the loan of HK$1.5 million.  He explained that due to their old age, he needed HK$800,000 to find a guarantor, in case the Defendants could not repay the loan and he and the guarantor would together pay off their debts. Mr Fung added that due to the mortgage of the Property, it could not be rented or sold, but they still could live there to the age of 100. 

47.  The 2^nd Defendant said she thought both Mr Fung and Miss Cheung were very sincere and the Defendants completely trusted what Mr Fung said.  They therefore signed the authorization letter without knowing its particulars or the necessity to borrow HK$1.5 million.  Afterwards, Mr Fung said that the finance company would assign a Mr Chan in the morning of 5 June to inspect the Property.  After the inspection, Mr Ng of Tophill would meet them in Central MTR station and bring them to a finance company to sign the loan documents.  Mr Fung emphasized that after signing the documents, the Defendants had to cash the cheque issued by the finance company and bring the cash back to Tophill’s office immediately.  The Defendants agreed to the arrangement without question.

48.  In the morning of 4 June 2015, Mr Fung called the 2^nd Defendant and told her a man called Ah Man of Tophill would bring some documents for the Defendants to sign.  The 2^nd Defendant met Ah Man at Maxim’s fastfood restaurant in Hung Hom Railway Station and signed 2 sets of Chinese declaration claiming the 2^nd Defendant was a senior manager of Total Swiss earning a monthly salary of HK$90,000.  After the 2^nd Defendant had signed them, Ah Man took one set of the document away and the 2^nd Defendant kept the other.  Mr Fung sent her a message on WhatsApp that evening and told her to bring the Chinese declaration along the next day when signing the loan documents.

49.  In the morning of 5 June 2015, a staff member who claimed to be from the Plaintiff attended the Property for inspection.  The man took a few photographs.

50.  Later that morning, the Defendants met Mr Ng of Tophill at Central MTR Station and were brought to a nearby office.  They presumed it to be the office of the finance company but only later found it out to be the office of ATT. 

51.  The Defendants met a Mr Lau ie Keith Lau in a conference room who gave his name card to them and claimed that Keith Lau confirmed to them they were referred by Mr Fung of Tophill.  Mr Lau then took out a document and asked them to sign.  Mr Lau also gave them a document similar to a repayment schedule.  He said that the Plaintiff would first retain HK$108,111.12 as repayment of the first two installments.  Based on the belief that Tophill had arranged for the HK$1.5 million loan, the Defendants did not further consider the contents of those documents and just signed on them.  Mr Lau left the conference room thereafter, and took away the documents signed.  After Mr Lau had left, a Mr Cheung who claimed to represent the Plaintiff came into the conference room and gave them a document to sign, which they did and Mr Cheung left.  Another man then came into the conference room without introducing himself and gave more documents for the Defendants to sign.  In all 3 cases, the Defendants just signed whatever documents they were asked to without question or any explanation of their contents.

52.  On the last occasion, after the Defendants had signed the documents given to them, the man gave the Defendants a cheque in the sum of HK$1,241,438 payable to them jointly. 

53.  The Defendants then left the office of ATT, banked in the cheque at the Bank of China in Central in the company of Mr Ng and returned to Tophill’s office with Mr Ng and with the HK$1,241,438 in cash.  At the office of Tophill, the Defendants gave the HK$1,241,438 in cash to Mr Fung and signed 2 English documents at his request without understanding their contents.  They only saw the figure of “$140,000” on one of them and “$1,094,638” on the other.  The Defendants only subsequently found out the documents they signed were allegedly consultancy fees charged by Tophill in the sum of HK$140,000 and HK$1,094,638 which they had never agreed to pay.

54.  On 8 June 2015, the Defendants received some loan documents, and upon reading the same, they understood the Loan amount from the Plaintiff was HK$3 million at the interest rate of 18% p.a., payable by 120 instalments of HK$54,055.56.  The Defendants said they were very shocked because they only intended to borrow HK$1.5 million.  They claimed to have been deceived by collusion between Tophill and the Plaintiff and eventually reported the matter to the police in November 2015, which happened to be after the Plaintiff had issued the Originating Summons in the present action.

55.  The Defendants claim that they received no benefit at all from the HK$3 million Loan from the Plaintiff since a large part of it was given by themselves to Tophill—out of the HK$1,241,438 given by the Defendants to Mr Fung, HK$1,094,638 was charged by Tophill as consultancy fee while the remaining HK$146,800 was unaccounted for.  The Plaintiff itself had kept HK$108,112 which was treated as the first 2 instalment repayments.  The Defendants themselves did not mention the remaining HK$1,650,000.  But on the Plaintiff’s case and contemporaneous documents, every dollar was accounted for:

1.	2 months’ instalments were withheld by the Plaintiff on 5 June 2015	HK$108,112
2.	Registration fees of the Mortgage	HK$450
3.	Balance given to the Defendants on 5 June 2015	HK$1,241,438
4.	Stakeheld by ATT on 5 June 2015, of which:	HK$1,650,000
	(a) Used to repay the Maxcolm Loan on 17 June 2015	HK$1,608,120
	(b) Fees to discharge the Maxcolm Mortgage	HK$450
	(c) Remaining balance paid to the Defendants on 17 June 2015	HK$41,430
	Total:	HK$3,000,000

56.  As can be seen from the above summary, it is striking that the Defendants would fall for the alleged 2^nd Scam within so short a period of time after the 1^st.  In this court’s view, the inherent improbability of this second part of the Defendants’ case is equally obvious, or rather more so than the first part—since the amount of money said to have been deceived out of the Defendants was even larger.  The reasons why the court takes this view are numerous but suffice it to mention the following.

57.  First, the unique features in both scams were strikingly similar: (i) the requirement of obtaining a loan in an amount much larger than was necessary for the stated purpose—a loan of (originally) HK$1.1 million to pay off the UA Loan plus Credit Card Debts and a loan of HK$1.5 million[5] in order to chase back HK$720,000; (ii) the promise of replacing the original loans with other low-interest loans within a short time by complete strangers; (iii) the signing of all documents without explanation of their nature; (iv) the escort by a staff of the fraudsters throughout the process; and (iv) the handing over of cash to the fraudsters immediately after obtaining the loans. 

58.  If by 30 May 2015, the Defendants believed they were victims of the 1^st Scam, how could they fall for the 2^nd Scam the modus operandi of which was almost exactly the same as the 1^st Scam?  And who in his right mind would agree to borrow HK$1.5 million in order to get back HK$720,000 from a fraudster?  The natural thing to do must be to report the matter immediately to the police, which the Defendants did not do until months later and after the present action had been commenced. 

59.  Second, on the Defendants’ account, they came into contact with Tophill only as a result of a cold call from Miss Cheung whom they had never met and who claimed only to be an employee of Tophill, and not HSBC (unlike the 1^st Scam).  There was no previous dealing between them and Tophill and, on the evidence, Tophill was not a particularly well‑known company.  Why should they be so trusting of Mr Fung of Tophill as to do everything exactly as he told them to do, including giving him HK$1,241,438 cash immediately after they had received it from the Plaintiff?  This is doubly puzzling when the Defendants had along claimed they only wanted to get back their HK$720,000.

60.  Third, after being told of the 1^st Scam on 30 May 2015 and after discovery of the alleged 2^nd Scam on 8 June 2015, the Defendants must realise there was little hope of recovering anything directly from the fraudulent intermediaries King Fung, Tophill or their alleged collaborators and Tophill was not there to help them at all.  Still, the Defendants did not immediately report to the police but waited until November 2015.  Meanwhile, the Defendants paid the first monthly instalment of the Maxcolm Loan in the sum of HK$32,207 on 12 June 2015, as admitted in the 2^nd Defendant’s police statement on 1 November 2015.

61.  Fourth, and most importantly, the Plaintiff’s loan documents signed by the Defendants (except the Mortgage) are in both Chinese and English and show the loan amount of HK$3 million, interest rate of 18% p.a., repayable in 10 years at HK$54,055.56 per month and the existence of the Mortgage.  They include inter alia the Loan Agreement with the Repayment Schedule and a HSBC Standing Instruction Request Form by the 2^nd Defendant to transfer HK$54,055.56 monthly to the Plaintiff.

62.  In these circumstances, how can the Defendants still claim to have been deceived into thinking they were only borrowing HK$1.5 million from the Plaintiff at the time they signed the loan documents on 5 June 2015 at ATT’s office? 

63.  On a more general note, not only has the 2^nd Defendant lied about the amount of her Credit Card Debts, she had also lied when she said in her witness statement that, apart from a sum of HK$105,419 received by her as commission/rebate from Total Swiss in 2014-15, she had no income.  This is contradicted by her own HSBC bank passbook which shows she regularly received monthly commission or salary of a few thousand dollars and sometimes over HK$10,000 from 2016 up to at least June 2018. 

64.  To conclude, this court finds the 2^nd Defendant a wholly untruthful witness and has no difficulty rejecting her testimony. 

65.  In any event, whatever may or may not have happened between the Defendants on one side and King Fung, Maxcolm, and Tophill on the other, and ignoring the inherent improbability of the events as testified by the 2^nd Defendant for the time being, her testimony still fails to implicate the Plaintiff as having acted in collusion with Tophill.  In so far as the Defendants assert that the Plaintiff had acted in collusion with Tophill in the 2^nd Scam, in this court’s view, that is nothing more than a bare assertion.

The Plaintiff’s case

66.  In the Amended Statement of Claim at paragraph 10(f), as modified by the updated calculation supplied by Plaintiff’s counsel on Day 3 of trial and the Plaintiff’s Closing Submissions, its monetary claim is calculated as follows:

(1)  Outstanding amount of the Loan: HK$2,891,438[6].

(2)  Interest at 18% p.a. on HK$2,891,438 from 6 August 2015 to 6 March 2019^[7] : HK$1,865,096.34.^[8]

(3)  Default interest: HK$31,817.10 (abandoned by the Plaintiff^[9]).

(4)  Hence, as at 6 March 2019, the total amount due to the Plaintiff ie (1) + (2) should be HK$4,756,534.34 while interest continues to accrue on HK$2,891,438 from 7 March 2019.

67.  In summary, the Plaintiff’s case is that it did not know and had no relationship with Tophill, King Fung or Maxcolm whatsoever. There was simply no collusion between the Plaintiff and Tophill to deceive the Defendants as alleged.  On a more general level, the Plaintiff had never engaged or paid any intermediary or middle man to refer clients to it.  While the Plaintiff received client referrals from time to time, it had never paid or promised to pay any fees for such referrals—it has its own strong clientele and does not need to rely on client referrals for its business.

68.  As succinctly summarized in Mr Wong’s written submissions, the Plaintiff’s account of the events leading to the grant of the Loan is essentially this.

69.  On 1 June 2015, the Plaintiff received a call through the Plaintiff’s hotline from one Jerry Ng of Excellent Rich Services Limited (“Excellent Rich”) in relation to a mortgage loan application for 2 persons. This was the first time Lau dealt with Jerry Ng and Excellent Rich.  Prior to that, the Plaintiff had no connection or business dealings with them.  Over the phone, Jerry Ng briefed Keith Lau about the Defendants’ intention to apply for a HK$3 million mortgage loan.

70.  Later that day, Jerry Ng went to see Keith Lau and gave his name card to him.  He also provided the following documents to Keith Lau:

(1)  The Chinese loan agreement between the Defendants and Maxcolm dated 4 May 2015 for HK$1.6 million and the repayment schedule.

(2)  Copies of the Defendants’ HKID cards. 

(3)  The Defendants’ address proof in the form of a Water Supplies Department demand note dated 21 May 2015. 

(4)  A Chinese declaration of income signed by the 2^nd Defendant stating that she was the Senior Manager of Total Swiss with a monthly salary of HK$90,000.

(5)  Copy extracts of the 2^nd Defendant’s bank passbook.

(6)  The Defendants’ TransUnion credit rating reports dated 1 June 2015. 

71.  On 4 June 2015, Keith Lau first contacted the 2^nd Defendant by phone to follow up on the Defendants’ loan application.  During that telephone conversation, she explained:

(1)  The Defendants had obtained a HK$1.6 million mortgage loan from Maxcolm secured by the Property. 

(2)  They wished to re-mortgage the Property with the Plaintiff for a loan of HK$3 million in order to discharge the Maxcolm Loan and use the remainder to finance the purchase of a property by one of their sons.

(3)  Keith Lau told the 2^nd Defendant that the Plaintiff would charge an interest rate of 18% p.a., and owing to the Defendants’ age, the loan period would be 10 years and on that basis, the monthly repayment amount would be HK$54,055.56. 

(4)  The 2^nd Defendant said it would not be a problem as she was a direct sales dealer of diabetes products with many downline distributors and had a monthly income of around HK$100,000 and some monthly contribution from one of her sons.

(5)  Keith Lau told the 2^nd Defendant the Plaintiff’s usual requirement of prepayment of 2 monthly instalments in advance and and she agreed to it very quickly.

(6)  The 2^nd Defendant asked whether the Defendants’ application could be processed quickly since they had to pay Maxcolm interest at 28.8% p.a.  She also wished to transfer the mortgage to the Plaintiff as soon as possible since the first repayment for the Maxcolm Loan was due on 15 June 2015.

(7)  Keith Lau then told the 2^nd Defendant there would be an on-site inspection of the Property by the Plaintiff and would arrange a surveyor to evaluate it.  He also requested to meet the Defendants.  The 2^nd Defendant agreed and so the site inspection by the Plaintiff’s and the valuer’s staff and the meeting were arranged for the next day.  At first, Keith Lau said the meeting and the signing of the Loan Agreement would be in the Plaintiff’s office in Wan Chai North whereas the execution of the Mortgage and the release of the Loan would be in ATT’s office in Central.  But at the 2^nd Defendant’s request that all documentation be handled in one place at ATT’s office, Keith Lau agreed.

72.  Afterwards, Keith Lau or his assistant Mr Raymond Cheung (“Raymond”) conducted a land search of the Property, which is corroborated by the copy land search record in the Plaintiff’s bundle of documents.  Keith Lau also appointed DTZ Debenham Tie Leung Limited (“DTZ”) to attend the Property for inspection and to prepare a valuation report.  Over the phone, DTZ orally provided an initial evaluation of HK$4.12 million, subject to inspection. 

73.  After examination of the available documents, valuation of the Property and the discussion on the phone with the 2^nd Defendant, Keith Lau basically decided to approve the application on a preliminary basis since it met the Plaintiff’s conditions for the grant of a loan, subject to the inspection and meeting the next day.

74.  On 5 June 2015, matters proceeded as follows:

(1)  At around 8:30am, Raymond and DTZ’s staff attended the Property for inspection.  Raymond chatted casually with the Defendants and took some photos.  He then left first while the staff of DTZ stayed on to continue the inspection for the valuation report.

(2)  Raymond went back to the Plaintiff’s office and reported to Keith Lau his discussions with the Defendants during the inspection.  He also received a phone call from DTZ’s staff telling him that the inspection had finished but there were canopies in the Property.  On the other hand, Keith Lau had a number of email exchanges with ATT regarding the Loan Agreement, the time of the drawdown at 11am and the prepayment of 2 monthly instalments by the Defendants.  He also arranged to meet the Defendants at 11am (instead of that afternoon) at ATT’s office.

(3)  At around 11am, Keith Lau and Raymond met the Defendants in a conference room at the office of ATT:

(a)  Keith Lau confirmed with the Defendants the purpose of the Loan, explained the main terms of the Loan Agreement and gave them time to study it as it was in Chinese as well.  The 2^nd Defendant, on the other hand, confirmed she would be able to meet the monthly payment obligation. 

(b)  The Defendants also agreed to the use of the Loan amount as follows:

(i)  HK$1,650,000 to be stakeheld temporarily by ATT for the purpose of discharging all the amounts due to Maxcolm;

(ii)  HK$108,112 to be paid to the Plaintiff, being 2 months of instalment payments in advance ie for July and August 2015;

(iii)  HK$450 to be paid to the Hong Kong Government being the registration fees for the Mortgage; and

(iv)  The balance be paid to the Defendants.

(c)  Keith Lau then asked the Defendants to initial or sign on the Loan Agreement.  The 2^nd Defendant also signed the HSBC Standing Instruction Request Form. 

(d)  Keith Lau then told the Defendants they needed to stay behind and execute the Mortgage, which would be attended to by a representative of ATT.  Keith Lau and Raymond then left the conference room.

(4)  After Keith Lau and Raymond had left, Calvin Chan then entered the conference room.  He took the Defendants’ ID cards for photocopying and for on-line bankruptcy search.  After confirming that they had no bankruptcy records, Calvin Chan started explaining the documents and arranged for their execution.  The documents signed by the Defendants included:

(a)  the Mortgage;

(b)  a Confirmation Letter reminding them to seek independent legal advice concerning the Mortgage.  The Chinese part of the Confirmation Letter stated that:

“ 本人／我們，下方簽署者，茲確認下述及作出以下聲明：

1. 本人/我們經由歐湯曾律師行忠告，並完全明白歐湯曾律師行於此項交易只代表放款人，而歐湯曾律師行亦曾進一步忠告及提醒本人/我們就有關本人簽署之上述文件尋求獨立法律輔導之權利﹔

2. 本人/我們決定不另尋求獨立法律意見並明白歐湯曾律師行於此項交易並無責任給予本人/我們任何法律輔導及意見，但在本人/我們要求下，歐湯曾律師行已向本人/我們解釋上述抵押文件之內容﹔及

3. 本人/我們自願提供抵押物品及簽署上述抵押文件而本人/我們並無受到任何人或公司不適當之影響，強迫或威脅” (emphasis added);

(c)  an authorisation letter to ATT concerning the redemption of the Maxcolm Mortgage;

(d)  an instructions letter to ATT regarding the use of the Loan as follows:

(i)  HK$108,112 to the Plaintiff, being the first two monthly instalments;

(ii)  HK$450 to HKSAR;

(iii)  HK$1,650,000 be stakeheld by ATT being money for settlement of the Maxcolm Mortgage; and

(iv)  the balance in the sum of HK$1,241,438 to the Defendants.

(5) Afterwards, ATT issued cheques in accordance with the Defendants’ instructions, in particular, a cheque drawn in favour of the Defendants in the sum of HK$1,241,438.

75.  The Plaintiff’s case is supported by the testimonies of the Plaintiff’s 2 witnesses viz Keith Lau and Calvin Chan. Their testimonies are inherently probable and supported by unchallenged or unchallengeable contemporaneous documents.  In the witness box, they both testified in a straightforward manner and their answers to questions put to them were mostly direct and prompt.  Their credibility has withstood the test of cross‑examination. This court finds both of them truthful witnesses and has no difficulty in accepting their testimonies.

76.  For the above reasons, Issue 1 must be decided in favour of the Plaintiff.  This court finds there was no collusion between the Plaintiff and Tophill to deceive the Defendants into entering into the Loan Agreement and the Mortgage and to charge them sums of money for procuring the Loan.  Indeed, this court finds the Defendants knew exactly what they were doing with the Plaintiff ie borrowing HK$3 million from the Plaintiff to be secured by the Mortgage on the Property.

Issue 2—Contraventions of the MLO

77.  In their Re-Re-Amended Defence, the Defendants have pleaded the following contraventions of the MLO as follows:

“36. In contravention of Section 22(1)(b) of the MLO, Clause 11 of the Loan Agreement empowers the Plaintiff to cancel or terminate the Loan Agreement and demand full repayment of the entire balance of the principal loan sum and the interest outstanding thereunder at any time. Clause 11 therefore in effect prohibits repayment of the HK$3,000,000 loan by installment. The contravention renders the Loan Agreement illegal.

36A. In contravention of Section 21 of the MLO, Clause 7 of the Loan Agreement provides that the Defendants may at any time repay the Loan in full by 1month prior written notice but have to make an early repayment service fee in the amount set out in Schedule 2 in addition to the Loan interest; and Schedule 2 to the Loan Agreement and the Memorandum provides that the Early Repayment Service Fee is 5% of the Loan amount in the first 6 months from drawdown or HK$150,000 whichever is higher.

37. Clause 27 and Schedule 3 of the Loan Agreement provide that if the Defendants fail to pay any sum due under the Loan Agreement, the Defendants have to pay a late payment charge of HK$500 per month until the default is remedied. The nature of the said late payment charge is payment by the Defendants to the Plaintiff for securing repayment by the Defendants and the imposition of the late payment charge renders the Loan Agreement illegal under Section 27(1) of MLO. Alternatively, if the late payment charge is construed as part of the interest charged by the Plaintiff under the Loan Agreement, the rate of interest of the Loan Agreement actually increases by default of payment of sums due and the Loan Agreement is illegal by virtue Section 22(1)(c) of MLO.

38. Moreover, note 21 of the Memorandum of the Loan Agreement states that the place of negotiation and completion of the Loan Agreement was ‘Room 4917-4932, 49/F, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong’, i.e. the place of business of the Plaintiff specified on its Money Lender’s License.  However, the Defendants had never attended the said premises prior to the signing of the Loan Agreement and the Mortgage. The Loan Agreement and the Mortgage therefore must have been negotiated outside the place of business of the Plaintiff.  Pursuant to Section 7 of MLO, the Plaintiff shall not carry on business as a money lender at any place other than the place of business specified on the Money Lender’s License of the Plaintiff.”

Clause 11 and section 22(1)(b)

78.  Clause 11 of the Loan Agreement provides that:

“Notwithstanding anything to the contrary contained in this Agreement, the Lender reserves the overriding right at its absolute discretion and without cause to cancel or terminate the Loan at any time prior to the Last Repayment Date. Upon such cancellation or termination and within two (2) days of the first demand made by the Lender, the outstanding principal amount of the Loan together with all outstanding accrued interest thereon and all other sums, if any, payable by the Borrower(s) shall be repaid by the Borrower(s).”

79.  On the face of it, it seems to this court that Clause 11 simply allows the Plaintiff to terminate the Loan at any time and demand for the entire balance of the outstanding principal and interest.

80.  On the other hand, section 22(1)(b) of the MLO provides:

“(1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—

...

(b) prohibiting the repayment of the loan by instalments;”

81.  To begin with, Clause 11 does not contain any prohibition of the repayment of the Loan by instalments.  In fact, the Loan Agreement actually required the Defendants to repay the Loan by 120 monthly instalments of HK$54,055.56: see Clause 4(B) of the Loan Agreement, Notes 14 and 15 of the Memorandum and the Repayment Schedule.  There is nothing in the Loan Agreement, whether in Clause 11 or otherwise, which suggests Clause 11 has the effect of overriding or rendering ineffective the provisions in Clause 4(B), Notes 14 and 15 of the Memorandum or the Repayment Schedule.

82.  Indeed, the point has already been decided by the Court of Appeal in Emperor Futures Ltd & Anor v La Belle Fashions Ltd & Ors [2003] 1 HKLRD 424 which held that a loan repayable on demand was not in breach of section 22(1)(b).  At [72], Rogers VP said this:

“It is said that there has been a breach of the Ordinance under section 22(1)(b) in that the loans are repayable on demand. It is said that if the loan is repayable on demand that excludes repayment by instalments. For my part, I would not consider there has been a breach of the requirement of the Ordinance in this respect, because the agreement itself does not preclude the repayment of the loan by instalments.” (emphasis added)

83.  In Emperor Futures Ltd & Anor v La Belle Fashions Ltd, there was no provision for instalments payment from time to time: see [84].  The argument for a breach of section 22(1)(b) is even weaker in the present case since not only did the Loan Agreement not preclude the repayment of the Loan by instalments, it actually required the Defendants to pay by monthly instalments.  In any event, this court is bound by Emperor Futures Ltd & Anor v La Belle Fashions Ltd.  The Defendants’ argument of a breach of section 22(1)(b) must be rejected.

Clause 7 and section 21

84.  Clause 7 Loan Agreement provides that:

“The Borrower(s) may at any time before the Last Repayment Date repay the Loan in full (but not in part) by giving to the Lender not less than one (1) month’s prior written notice. On the date when such repayment is to be made, the Borrower(s) shall pay the Lender the principal amount outstanding, all accrued interest thereon and any other sums, if any, due and payable by the Borrower(s). If the Borrower(s) repay the Loan prior to the Last Repayment Date, an early repayment service fee in the amount set out in Schedule 2 hereto will be levied in addition to the applicable interest charged.” (emphasis added)

85.  The Early Repayment Service Fees stipulated in Schedule 2 was “5% on original loan amount in the first six months from drawdown or HKD 150,000 whichever is higher”.

86.  Section 21(1) of the MLO states:

“(1) A borrower under any agreement for the loan of money by a money lender shall be entitled at any time by notice in writing to the money lender and the payment to the money lender of all amounts payable as principal by the borrower which are outstanding under the agreement, together with interest computed up to the date of such payment, to discharge his indebtedness under the agreement:

Provided that the effective rate of such interest shall not exceed the effective rate at which interest would have been payable under the agreement if the borrower had not exercised his right under this section to discharge his indebtedness.”

87.  There is very little clue as to how Mr Ho wishes to develop this argument since his Closing Submissions only deal with the collusion defence whereas in his Opening Submissions at [39], he simply said this:

“39. [Clause 7] is in contravention of s21 of MLO by imposing a penalty for early repayment. It is perhaps not necessary to push for this defence due to the same reason as stated above.”

88.  “The same reason as stated above” presumably refers to what he said in [36] and [37]:

“36.  ... However, the main line of defence is the unenforceability of the Loan Agreement under ss2, 24, 27 & 29(10) of the Money Lenders Ordinance Cap 163 (“MLO”).

37.  S7 MLO – This section provides no person shall carry on business as a money lender – (a) without a licence; (b) at any place other than the premises specified in such licence; or (c) otherwise than in accordance with the conditions of a licence.  Ds do not wish to labour on this breach as this becomes academic if Ds succeed on the unenforceability defence.” (emphasis added)

89.  Be that as it may, in Swiss Finance Mortgage Services Limited v Wong Kam Fan & Anor unrep, HCA 1244 of 2015, 22 December 2016, B Chu J accepted at [38] that section 21(1) of MLO is a right conferring provision and guarantees the borrower a right to early repayment.  On the face of section 21(1), that right is subject to 2 conditions: (i) the giving of notice in writing to the money lender and (ii) the payment of all amounts payable as principal which are outstanding together with interest computed up to the date of such payment. 

90.  In this court’s view, this is not a case where the Defendants sought to make early repayment in order to discharge their indebtedness to the Plaintiff so the Defendants’ argument is academic.  But if they did seek to do that, all they had to do was to fulfill the 2 conditions set out in section 21 and the Plaintiff must allow them to do so.  In other words, the effect of section 21 is that the Plaintiff could not insist on the fulfillment of any other condition eg the payment of Early Repayment Service Fees, by the Defendants before they could get an early discharge of the Loan.  What section 21 does not provide is that the existence of any other additional condition in the loan agreement or the imposition of any other additional condition by the moneylender subsequently would render the entire loan agreement void.  

91.  At [38] of Swiss Finance Mortgage Services Limited v Wong Kam Fan & Anor, B Chu J held that “a contravention of section 21 does not render the entire Loan Agreement void for illegality.”  Similarly, in Easy Fortune Property Limited v Yung Chun Him unrep, HCA 1484 of 2014, 12 August 2016 at [25] and [26], Recorder Pow SC also accepted counsel’s submission that section 21 merely gives a right to borrower to tender early repayment to discharge his indebtedness—it has no effect on the legality or enforceability of the loan agreement and the related security.

92.  For these reasons, the Defendants’ argument of a breach of section 21 must be rejected.

Clause 27/Schedule 3 and section 27(1)/section 22(1)(c)

93.  Clause 27 of the Loan Agreement provides:

“If the Borrower(s) fails to pay any sum payable under this Agreement when due, without prejudice to the Lender’s right in this Agreement, the Borrower(s) shall pay a late charge in the amount set out in Schedule 3 hereto or in such other amount as may be determined by the Lender from time to time until the default is remedied to reimburse the administrative costs incurred by the Lender.”

94.  Schedule 3 provides:

“Overdue interest will be calculated daily on any sums due but not yet paid at the Interest Rate (currently 18% per annum) and on a 360 day a year; in addition, a late payment charge of HK$ 500 will be charged on the date after the payment due date on each month until the overdue amount is paid.”

95.  Section 27 of the MLO provides:

“27. Charges for expenses etc not recoverable

(1) Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

(2) (Repealed 69 of 1988 s. 23)

(3) Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.

(4) If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.”

96.  Section 22 of the MLO states:

“(1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—

...

(c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement:

...

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

97.  While it has been pleaded in paragraph 37 of the Re‑Re‑Amended Defence that the late payment charge of HK$500 per month until the default is remedied is payment by the Defendants to the Plaintiff for securing repayment by the Defendants and renders the Loan Agreement illegal under section 27(1) of MLO, there is again very little clue as to how Mr Ho wishes to develop this argument since (i) his Closing Submissions only deal with the collusion defence, (ii) there is nothing in his Opening Submissions which deals with the relationship between the late payment charge and section 27(1) and (iii) no authority has been cited which supports the proposition that a clause providing for late payment charge renders the entire loan agreement illegal and unenforceable.

98.  All Mr Ho has said in his Opening Submissions about the late payment charge is these:

“40. S22 of MLO – Clause 27 of the Loan Agreement seeks to impose a late payment charge. Under s22 of MLO it is illegal for money lenders to directly or indirectly charge compound interest, prohibit repayment of the loan by instalments; or increase the amount of interest by reason of default in payment of the sum due under the loan agreement.”

99.  This court is not persuaded that section 27(1) of MLO renders the entire Loan Agreement unenforceable by virtue of the provision for late payment charge.  The reasons are these.

100.  First, for the present purpose, the key words in section 27(1) is that “Any agreement ... for the payment ... of any sum ... incidental to or relating to the ... securing of the repayment thereof[10] shall be illegal.”

101.  The late payment charge of HK$500, as its name suggests, only applies to the borrower failing to pay the monthly instalment on time.  It is there to encourage the borrower to make instalment payments on time, or rather discourage the borrower from being late with the monthly instalments.  It is therefore difficult to see how the nature of a late charge of HK$500 is intended to secure the repayment of the HK$3 million Loan as such. 

102.  Second, on the face of Clause 27, the imposition of late charge is to reimburse the administrative costs incurred by the Plaintiff,  so by nature it can be regarded as some form of compensation to the Plaintiff.  In any event, whether it is regarded in substance as a form of compensation to the lender or as a penalty to the borrower for being late with the monthly instalments matters little.  The important thing is that it is not incidental to or relating to the securing of the repayment of the Loan.

103.  Third, the section heading of section 27 reads “Charges for expenses etc not recoverable”.  If one reads section 27(3) and (4) in their entirety, it would appear that the principal intention of section 27 is (i) to render the offending charges ie sum, remuneration or reward for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof unlawful and not recoverable or (ii) if the offending charges had already been paid, the borrower can recover the money so paid from the person who received it; alternatively, if such person is inter alia the money lender, the money may be set off against the amount actually lent.  There is no indication, expressly or implicitly, that a contravention of section 27 has the effect contended for by Mr Ho ie rendering the entire Loan Agreement illegal and unenforceable.

104.  Regarding section 22(1)(c) of MLO, the Plaintiff has conceded in paragraph 16B of its Re-Re-Amended Reply that Clause 27 and Schedule 3 of the Loan Agreement contravene section 22(1)(c) of the MLO.  What the Plaintiff relies on is section 22(2) which empowers the court, if it is satisfied that in all the circumstances it would be inequitable for the agreement to be held unenforceable, to order the Loan Agreement enforceable to such extent as the court considers equitable.

105.  In Treasure Spot Finance Company Limited v Li Chik Ming and Another unrep, HCA 5387 of 2001, 3 December 2007, Recorder Patrick Fung SC, the issue before the court was, having held the 3 loans in question unenforceable/illegal by reason of sections 18(1) and (2), 29(4)(a) and 22(1)(c) of MLO, how the court should exercise its discretion under sections 18(3) and 22(2).  At [27] and [28], the learned Recorder observed that:

“27. Having considered all the cases, I have come to the conclusion that there has really been no change of philosophy or new school of thought in the Courts in relation to moneylenders cases as suggested by Mr Ng SC. I believe that the Court of Final Appeal in [Emperor Finance Ltd v La Belle Fashions Ltd (2003) 6 HKCFAR 402] and [Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529] has really set out guidelines for the exercise of the discretion in a more comprehensive and detailed manner than in the previous cases decided in the lower Courts.

28. From these cases, I believe that the following guidelines (not necessarily exhaustive) for the exercise of the discretion can be extracted: -

(i)  The discretion given by sections 18(3) and 22(2) to the court is extremely wide and empowers it to look at all the circumstances in a particular case in arriving at an equitable result between the moneylender and the borrower. (See the Judgment of Ribeiro PJ in [Emperor Finance Ltd v La Belle Fashions Ltd] at para. 119 and the Judgment of Chan PJ in [Strong Offer Investment Ltd v Nyeu Ting Chuang] at para. 20.)

(ii)  There is no single circumstance or set of circumstances which is decisive as to how the court should exercise its discretion in a particular case. Each case must be decided on its own facts.

(iii)  The court will have to go through a balancing exercise in arriving at a decision. (See the Judgment of Chan PJ in the Strong Offer case at para. 33.)

(iv)  The fact that an act or omission by a moneylender constitutes an offence (as provided under section 29(4)) or is specified to be illegal (as provided under section 22(1)) is not a factor which is decisive against the moneylender in the exercise of the court’s discretion, otherwise sections 18(3) and 22(2) would be meaningless and even self-contradictory.” (emphasis added)

106.  In Emperor Finance Ltd v La Belle Fashions Ltd (2003) 6 HKCFAR 402 at [119],Ribeiro PJ gave the following guidance on the exercise of the court’s discretion under section 18(3):

“119. In exercising its discretion the court should examine the breach or breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable. In my judgment, it is clear that upholding unenforceability in this case would be inequitable and accordingly that the Court’s discretion should be exercised in Finance’s favour so that its claims against La Belle, Hubbard and Madam Ng are enforceable in full.” (emphasis added)

107.  Similarly, in Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529 at [18]-[19], Chan PJ said this in relation to the exercise of the court’s discretion under section 18(3):

“18. Section 18 offers one of the key protections to uneducated, ignorant and unsophisticated borrowers who may not be aware of all the terms and conditions under which the loans are made to them. It seeks to impose certain requirements the compliance with which is a pre-requisite to the enforcement of the loan agreement against the borrower. ... These conditions are imposed to ensure that a borrower is fully aware of and freely agrees to all the terms and conditions of the loan, and in particular knows exactly how much money he has borrowed and what interest he has to pay.

19. On the other hand, the statute is not intended to stifle genuine money-lending transactions or to let the money lender lose all the money he has lent out and all the security he has because of a failure to comply with all such requirements, however trivial or unintentional the breach may be. Hence, where it is not inequitable to do so, the court would enforce the loan agreement with suitable variations, modifications and exceptions. This is the discretion given to the court by s.18(3).

20. In resolving any dispute between the money lender and the borrower, therefore, there should be no pre-conceptions either in favour of or against the money lender or the borrower. The statute has sought to strike a fair balance between the two parties. ...” (emphasis added)

108.  Although both Emperor Finance Ltd v La Belle Fashions Ltd and Strong Offer Investment Ltd v Nyeu Ting Chuang were concerned with the exercise of the court’s discretion under section 18(3), there is no logical reason why or any indication in MLO that the court’s discretion under section 22(2) should be exercised any differently.  In fact, the express provision of section 22(2) follows closely that of section 18(3) and it would create an unjustified anomaly if the discretion under the two sections is to be exercised differently.

109.  Having considered all the circumstances of the present case and striking a fair balance between the Plaintiff and the Defendants, this court is of the firm view that it should order the Loan Agreement to be enforceable, save and except such part of Clause 27 and Schedule 3 which relate to late payment charge.

110.  On any view of the matter, the breach in question ie the inclusion of a clause providing for the payment of a late payment charge of HK$500 can only be described as trivial.  The amount of late payment charge, when compared with the monthly instalment of HK54,055.56, is less than 1% and cannot possibly have any serious consequences for the Defendants even if they were required to pay or have paid, which they were not and have not.

111.  There is no evidence that the Plaintiff had any intention to enforce the late payment charge.  On the contrary, after the Defendants had defaulted in paying the instalment due on 5 September 2015, the Plaintiff, in its demand letter dated 23 September 2015, had not made any demand for the late payment charge, thus evincing its intention not to enforce it.  Nor has the Plaintiff claimed late payment charge in this action. Hence, the provision for the late payment charge in Clause 27 and Schedule 3 has no practical consequences for the Defendants whatsoever. 

112.  On the other hand, if this court were to hold the Loan Agreement unenforceable, the Plaintiff would lose the entire outstanding amount of the Loan plus all accrued interest which add up to over HK$4.7 million as at 6 March 2019.  This is exactly what MLO is not intended to achieve according to Chan PJ at [19] of Strong Offer Investment Ltd v Nyeu Ting Chuang quoted above.

113.  Further, not only would the Plaintiff completely lose out if this court were to hold the Loan Agreement unenforceable, the Defendants would be unjustly enriched by (i) having the Maxcolm Loan discharged with the Plaintiff’s money and also by (ii) having received over HK$1.2 million from the Plaintiff.  How the Defendants then chose to use the money was beyond the Plaintiff’s control but the fact remains that the Defendants had received over HK$1.2 million of the Plaintiff’s money.

114.  To conclude, in the circumstances of this case, the only equitable result must be for this court to exercise its discretion to order the Loan Agreement enforceable save and except such part of Clause 27 and Schedule 3 which relate to late payment charge and this court shall so order.

Note 21 of the Memorandum and section 7(1)(b)

115.  Section 7 of MLO provides:

“7. Restriction on carrying on of business of money lender

(1) No person shall carry on business as a money lender—

...

(b) at any place other than the premises specified in such licence;”

116.  In the Memorandum at note 21, the Place of Negotiation and Completion was stated to be the Plaintiff’s place of business given in its Money Lenders Licence ie “Room 4917-4932, 49/F, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong” (“Premises”).

117.  As pleaded in paragraph 38 of the Re-Re-Amended Defence, the Defendants’ submission is that there was a breach of section 7(1)(b) of MLO since the Defendants had never attended the Premises prior to the signing of the Loan Agreement and the Mortgage.  The conviction with which Mr Ho puts forward this submission can again be seen from his Opening Submissions:

“37. S7 MLO – This section provides no person shall carry on business as a money lender – (a) without a licence; (b) at any place other than the premises specified in such licence; or (c) otherwise than in accordance with the conditions of a licence. Ds do not wish to labour on this breach as this becomes academic if Ds succeed on the unenforceability defence.” (emphasis added)

118.  The Plaintiff’s account of the events leading to the signing of the Loan Agreement and the Mortgage on 5 June 2015, which this court accepts, has already been set out above under Issue 1.  It is not in dispute that on 5 June 2015, after Keith Lau and Raymond’s meeting with the Defendants at ATT’s office, all the loan documentation, including the Loan Agreement and the Mortgage, were signed there and part of the Loan amount was also released to the Defendants there.

119.  But does it follow, from the fact that the Defendants had not attended the Premises prior to the signing of the Loan Agreement and the Mortgage, that the Plaintiff was thereby in breach of section 7(1)(b) for not carrying on business as a money lender at any place other than the premises specified in its Money Lenders Licence?  In this court’s view, the answer must be no. 

120.  It is not in dispute nor is it disputable that the Premises were the Plaintiff’s office and place of business as specified in its Money Lenders Licence.  There is no evidence to suggest that the Plaintiff did not at the material time habitually carry on its money lending business on the Premises.  Further, it is a fact found by this court that a substantial part of the preparatory work for the loan application were done and the assessment of the loan application by Keith Lau took place on the Premises between 1 and 4 June 2015.  After Raymond had finished his inspection of the Property on 5 June 2015, he also went back to the Premises to brief Keith Lau as to what had happened.  It seems to this court a complete non sequitur to suggest that because the very last part of the loan transaction which took place on 5 June 2015 ie the meeting between the Plaintiff’s Keith Lau and Raymond and the Defendants and the signing of the Loan Agreement and the Mortgage took place in a solicitors’ firm, the Plaintiff was not carrying on its money lending business on the Premises.

121.  In The Annotated Ordinances of Hong Kong—Money Lenders Ordinance (Cap 163) 2015 Reissue at paragraph 7.02, the author noted:

“If the money lending transaction is substantially arranged and started at the authorised place of business of the money lender, it would seem that this would not be in breach of the provision because not every stage or incident of the transaction needs to be carried out at the same address: Kirkwood v Gadd [1910] AC 422, Cornelius v Phillips [1916-1917] All ER 685, [1918] AC 199. It is generally accepted that the licensed money lender, to come within the terms of the provision, does not have to undertake the whole of his tasks at his place of business as shown in the licence ...” (emphasis added)

122.  In Kirkwood v Gadd [1910] AC 422, it was held not to be a breach of the former UK equivalent of section 7(1)(b) where the agreement for the loan, the advance of the money and the taking of security (a bill of sale) all took place at the borrower’s private residence.  At pp 423-4, Lord Loreburn LC explained why:

“ ... This Act of Parliament cannot mean that every stage and every incident of every piece of the money-lending business is to be transacted at the registered office. That would be impossible, for such things as making inventories or taking possession of furniture under a bill of sale are part of the business and must be done where the goods are situated. Nor can it be intended to prohibit the employment of clerks and agents, or the transaction outside the registered address of every single thing that could by possibility be transacted within it. That would be needlessly oppressive and would strain the words. We must look at the nature of the mischief disclosed according to the approved canons of statutory construction. The mischief is that this dangerous business may be conducted by persons under false names or a variety of names without the security of an ascertained address, or at places where men may be taken unawares or off their guard. The words, which are in terms general, must be applied accordingly.

I do not propose to define what is meant by carrying on business lest I may facilitate evasion. But I do think that if a money-lender really deals with a borrower at his registered address, whether by interview or correspondence, he may, without infringing the Act, transact negotiations, or conclude the actual contract, elsewhere.” (emphasis added)

123.  In Cornelius v Phillips [1918] AC 199, the whole of the money lending transaction, in every one of its stages as between the money-lender Phillips and the borrower Cornelius, was carried out at the Blundell Arms Hotel, which was not the registered address of Phillips, and no part of the transaction was carried out at the money-lender’s address.  It was in these circumstances that the House of Lords concluded there was a contravention of the former UK equivalent of section 7(1)(b).

124.  To conclude, since a substantial part of the present loan transaction with the Defendants was started and arranged on the Premises, this court is of the view that the Plaintiff had not contravened section 7(1)(b) of MLO.

125.  For all the above reasons, Issue 2 must also be decided in favour of the Plaintiff.

DISPOSITION AND COSTS ORDER NISI

126.  To conclude, this court finds in favour of the Plaintiff and shall enter judgment against the Defendants jointly and severally in the sum of HK$4,756,534.34, together with interest on HK$2,891,438 at 18% p.a. from 7 March 2019 until judgment and thereafter at judgment rate until payment. 

127.  There shall be an Order against the Defendants for the delivery of vacant possession of the Property to the Plaintiff within 12 weeks or such other time as may be agreed by the parties in writing.

128.  There shall also be an Order nisi that costs of the action be to the Plaintiff to be taxed if not agreed and paid by the Defendants forthwith, with certificate for 2 counsel.