KENCY BROTHERS LTD v. LAU MAN SANG, JAMES

DCCJ 2143/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2143 OF 2012

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REASONS FOR JUDGMENT

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1. By a summons filed herein on 4 September 2012 by the plaintiff, the plaintiff applied for (i) summary judgment against the defendant for the sum of HK$609,126.80 being the outstanding sum under the 5^th Loan^[1] and the accrued interest up to 31 May 2012 and further interest at the Agreed Interest Rate^[2] or such rate as the court deems fit at such period on the outstanding sum from 31 May 2012 onwards under Order 14, r1 of the rules of District Court and (ii) an order that the counterclaim filed by the defendant be struck out under Order 18, r19 of the rules of the District Court.

2. Upon hearing the submissions made by the parties’ respective counsel and solicitor at the hearing, I made an order on 21 December 2012 as follows:-

(a)  summary judgment against the defendant for the sum of HK$609,126.80 being the outstanding sum under the 5^th Loan and the accrued interest up to 31 May 2012 and further interest at the compound interest rate of 1% per month on the outstanding sum from 1 June 2012 onwards up to date of payment;

(b)  the Counterclaim filed by the defendant be struck out on the ground that it discloses no reasonable cause of action under Order 18, r19 of the rules of the District Court;

(c)  costs of this action including costs of this application be to the plaintiff with certificate of Counsel, to be taxed if not agreed.

3. I told the parties’ respective legal representatives that I will hand down the judgment later and I now give the reasons for my decision below.

Summary Judgment Application

4. To begin with, it is worth to state the general legal principles under Order 14.

5. The policy of Order 14 is to prevent delay in cases where there is no defence and once the court concludes that there is no triable issue or question or that for some other reason there ought to be a trial, it will ordinarily give judgment for the plaintiff^[3].

6. It is the trite principle that a defendant must show that there are triable issues.  He has to satisfy the court that he has a “real or bona fide defence” or “a fair probability or reasonable grounds that a bona fide defence exists”.  If he makes allegation, it must be credible or believable in the light of the evidence placed before the court.  The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable.  But it must be recognized --- because failure to recognize it would create a debt-dodger’s charter --- that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute (Re Safe Rich Industries Ltd [1994] HKLY 183)^[4].

7. Cheung JA in Paul Y Management Ltd v Eternal Unity Development Ltd [2008] HKEC 1359 at para 19 held that:-

“In considering whether there are triable issues the court will, of course, not to take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. But what the Court should not do is to conduct a mini-trial on complicated factual issues.”

8. It is trite law that the mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since the defendant must satisfy the court that he has a fair or reasonable probability of show a real or bona fide defence.  If the evidence of the defendant is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence and judgment will be given to the plaintiff.  Two tests are appropriate, namely “Is what the defendant says credible?” and “Is there a fair or reasonable probability of the defendant having a real or bona fide defence?” Where an issue of fact is raised, the first question must be answered in the affirmative before considering the second^[5].

Plaintiff’s case

9. The plaintiff’s case is pleaded in the Statement of Claim filed herein and verified in the affirmation of Tang Kai Ming, Kenneth (“Kenneth Tang”) that on or about 28 June 2006, the defendant represented to Kenneth Tang by a phone call that he was in financial difficulties again and requested for a further loan from the plaintiff (“the 5^th Loan”).  Relied on the defendant’s guarantee, the plaintiff advanced the 5^th Loan to the defendant on that date in the sum of HK$300,000 with the agreed compound interest rate at 1% per month (“the Agreed Interest Rate”).

10. Monthly loan statements have been sent to the defendant by the plaintiff since advancement up to May 2012 on monthly basis (“Monthly Loan Statements”).  The total outstanding sum under the 5^th Loan together with the interest accrued thereon amounts to HK$609,126.80 as at 31 May 2012 and the plaintiff is now claiming for this outstanding amount with interest keep on accruing^[6].

Defendant’s case

11. The defendant does not dispute that the 5^th Loan was advanced by the plaintiff to him.  Mr Yeung, solicitor for the defendant, submitted that what is in dispute is:-

(a)  whether it was agreed between the parties that interest is payable on the 5^th Loan; and

(b)  whether the defendant has repaid the 5^th Loan in full before the commencement of these proceedings.

12. The defendant also does not dispute, as averred in paras 4 to 10 of the Statement of Claim, that there was a series of 5 loans altogether advanced by the plaintiff to the defendant for a total sum of HK$1,700,000.00 during the period from about the middle of February 1995 to 28 June 2006 (collectively “the Loans”). 

13. However, the defendant disputed that the loan statement annexed to the Statement of Claim as Appendix 1, which is self-generated by the plaintiff and only shows the interest payable on the 5^th Loan.  Mr Yeung for the defendant also contended that no explanation was given by the plaintiff as to why this action was commenced on 25 June 2012 for the recovery of the 5^th Loan and interest until some 5 years from the date of its advancement.  

14. The plaintiff has not disclosed to this court that it has on 31 August 2012, about 2 months after the commencement of these proceedings, commenced an action in the Court of First Instance bearing No 1567 of 2012 (“HCA1567/2012”) seeking the recovery of the first 4 of the loans with the interest accrued thereon against the defendant (collectively “the first 4 Loans”). 

15. Mr Yeung, solicitor for the defendant, invited this court to form the view that these proceedings ought to be dealt with together in the Court of First Instance as there is substantial connection between the claims by the plaintiff against the defendant in HCA1567/2012 and these proceedings. 

16. Mr Yeung for the defendant also submitted that the plaintiff ought to have transferred these proceedings to the Court of First Instance and be consolidated with HCA1567/2012.  By pressing ahead with the claim against the defendant in these proceedings, without any explanation by the plaintiff, this is an abuse of process of the court by the plaintiff.

17. The defendant not only maintains that he has repaid it in full, but also has through a company, Vanny Resources Holdings Limited (“VRHL”) paid over to the plaintiff the sum of HK$503,880.00, as deposed to in paragraphs 17 to 19 of his affirmation, which exceeds the principal of the 5^th Loan by HK$203,880.00 (“the Excess”).

18. The defendant accordingly counterclaims the plaintiff for the recovery of the Excess. 

19. Mr Yeung for the defendant further submitted that that it is common ground of the parties that the loans were advanced by the plaintiff to the defendant pursuant to oral agreements between Kenneth Tang and the defendant and that there is no documentation produced by the plaintiff in relation to the terms of the loans in particular the interest rate. 

20. The defendant also raised a defence of law that the plaintiff was, legally speaking, carrying on the business of a money lender within the meaning of the Money Lenders Ordinance Cap163 (“MLO”).  Under s23 of the MLO, a money lender who is not licensed may not be allowed to recover the loan and interest thereon subject to the court’s discretion to make exceptions or modifications if it is equitable for the court to do so. 

Discussion and Analysis

21. Although the defendant said in para 6 of his affirmation in opposition that the lender of the 1^st loan was Kenneth Tang rather than the plaintiff, Mr Yeung for the defendant conceded in his skeleton submission that there was a series of 5 loans altogether (including the 1^st loan) advanced by the plaintiff to the defendant for a total sum of HK$1,700,000.00 during the period from about the middle of February 1995 to 28 June 2006.  In fact, it is not pleaded in the Defence that the lender of the 1^st loan was Kenneth Tang rather than the plaintiff. It was the first time the defendant mentioned it in his affirmation.  It is not disputed that Kenneth Tang is the shareholder and director of the plaintiff.  In any event, I consider that the identity of the lender is no longer in issue or dispute based on the concession made by Mr Yeung in his submission. 

22. Regarding the issue on interest, I accept the submission of Mr Tze, Counsel for the plaintiff that the terms under the 5^th Loan has been affirmed and admitted by the defendant in his Defence and Counterclaim filed herein on 16 August 2012.  In para 3 of the Defence, the defendant admitted paras 4 to 9 of the Statement of Claim to the effect that the first 4 Loans has been advanced by the plaintiff to him with the Agreed Interest Rate save only that the 3^rd loan and 4^th loan were obtained by the defendant on behalf of a Chow Fat Kow (“Chow”).  The defendant did not explain in his affirmation what he meant by “the 3^rd loan and 4^th loan were obtained by the defendant on behalf of Chow”. I find it inconsistent with the concession made by Mr Yeung in his submission.

23. In para 4 of the Defence, the defendant further admitted paras 10 to 12 ^[7]of the Statement of Claim to the effect that he did not dispute that on the 28 June 2006, the 5^th Loan in the sum of HK$300,000 has been advanced to him by the plaintiff at the Agreed Interest Rate.  

24. Bearing in mind that the Defence and Counterclaim was verified by a Statement of Truth signed by the defendant pursuant to Order 41A RDC, I fail to see how the defendant can now dispute the Agreed Interest Rate by saying that the Loans were made on interest free basis[8].

25. Furthermore, in paragraph 5 of the Defence, the defendant also admitted that he received Monthly Loan Statements from the plaintiff.  The Monthly Loan Statements were issued by the plaintiff and had been sent to the defendant on the monthly basis for about 17 years from 1995 to May 2012.  The plaintiff produced 3 Monthly Loan Statements as exhibits TKMK-5, TKMK-6 and TKMK-7 in the 2^nd affirmation of Tang Kai Ming, Kenneth which show that all along the Monthly Loan Statements were issued in the name of the plaintiff to the defendant and the detailed calculation of the amount of interest accrued and the outstanding sum based on compound interest rate at 1% per month.  In my judgment, the defendant has to explain why he did not inform the plaintiff of the incorrect calculation of the amount of interest when he received the Monthly Loan Statements from the plaintiff every month for so many years.  Nevertheless, he fails to do so or at least he shall offer an explanation as to why he fails to do so in his affirmation in opposition. 

26. I consider that the defendant’s contention that the Loans advanced by the plaintiff were made on interest free basis is not only totally unbelievable but also inconsistent with the admissions made in the Defence filed. 

27. Indeed, it was not pleaded in the Defence that the Loans were advanced to him at an interest free basis.  The assertion that the first 4 Loans were advanced to him at an interest free basis was firstly raised by the defendant in his affirmation at paragraphs 12 to 14.  I note that the defendant did not explicitly say in his affirmation that the 5^th Loan was also interest free.  Even if the defendant implicitly alleged that the 5^th Loan was interest free as the first 4 Loans, I am of the view that it was contrary to his Defence and Counterclaim and also contrary to the undisputed documentary evidence as produced by the plaintiff in paras 5 to 9 of the 2^nd affirmation of Tang Kai Ming, Kenneth ie exhibits TKMK-5, TKMK-6 and TKMK-7. 

28. In the circumstances, I conclude that the defendant fails to satisfy the court that he has a fair or reasonable probability of having a real or bona fide defence on the “interest” issue. Thus, no triable issue has been raised for this point. 

29. For the similar reason, I consider that even if the issue of the identity of the lender is raised which was also a new assertion by the defendant in his affirmation and not pleaded in the Defence filed, it is not credible and not believable and is contrary to the contemporaneous documents (ie Monthly Loan Statements).  Thus no triable issue or bona fide defence has been raised on this point, too. 

30. Another issue raised by the defendant, namely the 5^th Loan has been repaid by Chow by way of 2 sums of US$64,600 (equivalent to HK$1,007,760) in about June and July 2009 respectively.  I am of the view that this defence is even more not capable to be believed. 

31. In para 17 of the defendant’s affirmation, he said, inter alia, that half of the sum of HK$1,007,760 (ie HK$503,880) (not the whole sum) was paid to Kency in repayment of the 5^th Loan.  However, such important fact was not pleaded in the Defence.  Instead, it was only pleaded in para 8 of the Defence that in repayment of the loans (not the 5^th Loan), Chow paid to VRHL two sums of US$64,600 (equivalent to HK$1,007,760).  In paras 19 and 20 of the defendant’s affirmation, he said, inter alia, that he was entitled to counterclaim the overpayment of HK$203,880 (ie HK$503,880 - HK$300,000) against Kenneth Tang and/or Kency.  Nonetheless, he is in fact claiming HK$407,760 against the plaintiff according to his Counterclaim filed.  No explanation was even given by him as to why there is such a great discrepancy between 2 figures as well as the identity of the person he is claiming.  

32. Indeed, I fail to understand his Counterclaim for HK$407,760 since the defendant alleged that Chow paid HK$1,007,760 to VRHL.  The difference between these 2 figures is HK$600,000 rather than HK$300,000 ie the principal sum of the 5^th Loan.  It seems to me that he shall counterclaim HK$707,760 instead of HK$407,760 if he is claiming the excess.  Furthermore, in para 13 of the Defence and Counterclaim, it was pleaded that “the Defendant” should be liable to half of the excess of the Loans repaid by Chow in the sum of HK$407,760.  First, I think the word “the Defendant” should be the plaintiff rather than the defendant.  I accept that it may be a typo mistake.  Secondly, the word “Loans” is in fact not defined in the Defence and Counterclaim or the Statement of Claim.  I have difficulty in understanding what the phrase “half of the excess of the Loans repaid by Chow” really means.  I guess the word “Loans” should be simply replaced by the word “sum”.  But it still does not make any sense since half of the excess of the sum repaid by Chow is HK$353,880 [(ie HK$1,007,760 - HK$300,000)/2] instead of HK$407,760 or HK$203,880 as said in the defendant’s affirmation.  I think the defendant or his solicitor has the duty to clarify.  Again, the defendant fails to explain why that is so in his affirmation.  In my judgment, the assertion pleaded in the Defence and Counterclaim is obviously contrary to the affirmation filed by the defendant himself. 

33. Moreover, if the defendant all along claimed that the 5^th Loan was interest free, then why Chow needed to repay for more than HK$700,000 which is double of the 5^th Loan borrowed.  Even if I take the version stated in the defendant’s affirmation, namely half of the sum of HK$1,007,760 (ie HK$503,880) was used in repayment of the 5^th Loan, HK$203,880 (ie HK$503,880 - HK$300,000) was mistakenly overpaid which is not a small amount of money.  There is no reason why the defendant is just able to discover it when being sued by the plaintiff bearing in mind that the 2 repayments by Chow were made in June and July 2009 ie more than 3 years ago. 

34. Besides, no explanation was given by the defendant as to why Chow could not make an affirmation to support what the defendant said in the Defence or his affirmation.  At least, he should explain if he has any difficulty in requesting Chow in making such an affirmation.  Obviously, he fails to do so.  It is just a bare assertion of the defendant that Chow had fully repaid the 5^th Loan for him without any documentary proof.  Hence, I conclude that this bare assertion is not a bona fide defence and is not a genuine triable issue to the plaintiff’s claim.

35. The next issue concerns the MLO. Upon clarification with Mr Yeung for the defendant, the exact issue in dispute is if the plaintiff is carrying on the business of money lender, it has to be licensed under the MLO; otherwise, it may not be allowed to recover the loan and interest thereon subject to the court’s discretion under section 23 of the MLO.  Again, this issue is not pleaded in the Defence and Counterclaim but suddenly mentioned in the defendant’s affirmation. 

36. In Kwok Ying Ming v Chow Kam Chuen^[9], although Judge Thomas Au (as he then was) came to the view that there was at least a triable issue as to whether the plaintiff advanced the loans to the defendant in the course of a money lending business, he hold that the contravention of ss18 and 23 of the MLO does not prevent the court from granting summary judgment in that case and that the money lender defence failed accordingly.  He said as follows:- 

“36. In the present case before me, the Defendant has not raised any evidence or even a complaint that (a) he was somehow prejudiced by the Plaintiff’s breach of ss. 18 and 23 of the MLO, (b) the conduct of the Plaintiff as a money lender or in the transactions has been oppressive or objectionable, (c) the interest rate charged under the 1st Loan is unreasonably high or that the Defendant was somehow misled or coerced into agreeing to the same.

37. Quite to the contrary, the undisputed evidence is that (a) the Defendant is a businessman and has been running his ferry shipping business and (according to his own case) a construction business. It can thus hardly be said that he is unsophisticated, (b) he is fully aware of the terms of the loans as demonstrated by the Written Document, and (c) the Plaintiff has been indulgent in chasing for repayment for over 3½ years without adopting any adverse measures.

38.  In light of this evidence, I hold that the contravention of ss 18 and 23 of the MLO does not prevent the Court from granting summary judgment in this case as equity cries out for relief under the provisos.”

37. In the present case, I also accept that there may be a triable issue as to whether the plaintiff advanced the loans to the defendant in the course of a money lending business.  However, the defendant fails to demonstrate (i) any prejudice suffered due to the plaintiff’s suspected breach of ss18 and 23 of the MLO, (ii) any oppressive or objectionable conduct of the plaintiff as a money lender in the transactions, (iii) the unreasonably high interest rate charged under the 5^th Loan or that the defendant was somehow misled or coerced into agreeing to the same. Mr Tze, Counsel for the plaintiff, submitted that compound interest at 1% per month is equivalent to about 13% per annum.  I do not consider that it is unreasonably high interest rate in the commercial world especially no security is provided by the defendant as borrower.  Besides, the Monthly Loan Statements were issued by the plaintiff and had been sent to the defendant on the monthly basis for about 17 years since the advancement of the 1^st loan but no complaint has ever been made by him regarding the plaintiff’s suspected breach of ss18 and 23 of the MLO.  Accordingly, I exercise my statutory discretion to allow the plaintiff to enforce the 5^th Loan against the defendant under section 23 of MLO even if the plaintiff is not licensed under the MLO.  I conclude that the money lender issue is not triable and bound to be failed.  

38. Concerning the issue of transferring this case to the Court of First Instance to be consolidated with HCA1567/2012, I do not have to deal with this issue since no formal application for transfer is made by any parties.  Perhaps if I find that there are triable issues in this case, I may consider making such an order upon application. Nonetheless, I had decided to enter summary judgment against the defendant for the 5^th Loan.  I can see no reason for transfer.  As to the first 4 Loans which is the subject matter in HCA1567/2012, I do not think that I shall have any further comments, in particular the defence under the Limitation Ordinance. 

39. Regarding the submission of abuse of process of the court, Mr Yeung for the defendant provided no legal authority to support such a submission.  I consider that this submission is totally without merit. 

40. Concerning the plaintiff’s admission of receipt of HK$1,440,000 from the defendant, I do not think that it help him to show any triable issues since the Monthly Loan Statement ie exhibit TKMK-6 clearly states the 2 relevant sums, first for HK$600,000 paid on 20 November 2003 and second for HK$840,000 paid on 15 April 2004. 

41. In the circumstances, I give summary judgment against the defendant in the sum of HK$609,126.80 being the outstanding sum under the 5^th Loan and the accrued interest up to 31 May 2012. I further exercise my discretion to grant interest thereon at the Agreed Interest Rate from 1 June 2012 until payment as the Agreed Interest Rate is the contractual interest rate agreed between the parties[10].

Striking Out Application

42. I agree with the submission of Mr Tze, Counsel for the plaintiff that the Counterclaim discloses no reasonable cause of action under Order 18, r19(1)(a).  It is the trite law that the court would only look at the counterclaim and will not regard to the evidence field by the parties. 

43. The basis for the Counterclaim was pleaded in paras 8 to10 in the Defence and Counterclaim filed herein.  It was pleaded that in repayment of the loans, Chow paid to VRHL two sums of US$64,600 and there was an excess of HK$407,760.  Therefore, the defendant is entitled to counterclaim the plaintiff for HK$407,760. 

44. From the pleaded case, I am of the view that the 2 repayments and/or money were belonged to Chow rather than the defendant and the 2 repayments were paid to VRHL and not to the plaintiff.  As the plaintiff, the defendant, Chow and VRHL are different and independent entities, even if there was any excess in the repayments, I consider that the person has the locus standi to sue is Chow and not the defendant and the person being sued should be VRHL and not the plaintiff (Ng Fui v Kam Chi Ming & others HCA 739/2011 at para.56 - 57). 

45. Therefore, I conclude that the defendant has no locus standi to sue and has sued for the wrong person (as the recipient was VRHL and not the plaintiff).  Thus the Counterclaim discloses no reasonable cause of action and is bound to be struck out. 

46. Although the plaintiff also relied on the grounds of scandalous, frivolous or vexatious and abuse of the process of the court as grounds to strike out, I find it unnecessary to deal with these grounds. 

47. As costs follows event, the defendant must pay costs of this action including costs of this application.  I also grant certificate of Counsel in view of the amount claimed more than HK150,000 and the complexity of the issues involved.