TOTALCORP (NOMINEES) LTD v. HONG KONG SAI KUNG NGONG WO RESORT DEVELOPMENT LTD

HCMP 674/2017

[2020] HKCFI 335

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J U D G M E N T

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1.  This is a mortgage action instituted under Order 88 of the Rules of the High Court by the plaintiff against the defendant arising out of a Legal Charge dated 5 February 2015 and made between the plaintiff as the Lender and the defendant as the Borrower (“the Legal Charge”).

2.  By the Legal Charge, the defendant as the registered owner of various lots of land in Sai Kung (“the LC Lots”) charged the same to the plaintiff as security for a loan of $44 million granted by the plaintiff to the defendant.

3.  The Legal Charge has been registered against the LC Lots in the Land Registry.

4.  The Legal Charge has also been registered against the defendant in the Companies Registry under the Companies Ordinance Cap 622 (“Cap 622”).

5.  There is also in existence an Equitable Mortgage dated 5 February 2015 and made between the plaintiff as the Lender and the defendant as the Borrower (“the Equitable Mortgage”).

6.  By the Equitable Mortgage, the defendant as the prospective owner of various other lots of land in Sai Kung (“the EM Lots”) which it had entered into agreements for sale and purchase to purchase charged its equitable interest in the same to the plaintiff as security for a loan of $1 million.

7.  As far as I am aware, the Equitable Mortgage has not been produced in evidence.  I am informed that it does not form part of the subject-matter of this action.  I shall say more about this below.

THE PLAINTIFF’S CLAIM

8.  This action was instituted by way of an originating summons (“the OS”).

9.  In the OS, the plaintiff claims against the defendant the following reliefs : -

“(a)  Payment of all monies due and owing to the Plaintiff under the respective covenants contained in the Legal Charge;

(b)  Delivery to the Plaintiff of vacant possession of the mortgaged properties which are more particularly set out in the SCHEDULE below;

(c)  Costs of these proceedings on full indemnity basis; and

(d)  Further and/or other relief. ”

The said Schedule sets out the particulars of the LC Lots.

10.  The OS is supported by the affirmation of Lau Hoi Tuen (“Lau”) (“Lau’s 1^st Aff”) who describes himself as a Manager of the plaintiff.  In it, he exhibits and relies on the Legal Charge and a Loan Application Letter in Chinese dated 14 October 2016 (“the Final Loan Application”) for the plaintiff’s claim.  In paragraph 7 of Lau’s 1^st Aff, he sets out the details of the plaintiff’s claim as follows : -

“7. The amounts due and payable by the Defendant are as follows : -

		HK$
(a)	Amount of the advance	44,000,000.00
		==========
(b)	Amount of the periodic payments
	Required to be made	4,940,000.00
		==========
(c)	Amount of instalments in arrears at the	0
	Date of the Originating Summons, that
	is, 24th March 2017
(d)	Amount of interest in arrears at the date
	of the Originating Summons	38,456,000.00
		===========
(e)	Amount of interest in arrears from the
	date of the Originating Summons to the
	date of this Affirmation	8,360,000.00
		=========
(f)	Amount remaining due under the Legal	85,876,000.00
	Charge	==========

There is now produced and shown to me marked ‘LHT-4’ a copy of the Statement of Outstanding Amount and Accrued Interest which shows the breakdown calculations of the accrued interest.  Further interest is accruing on the principal sum of HK$44,000,000.00 at the rate of 3.8% per month or HK$55,733.33 per day (subject to fluctuation) from 22^nd August 2017 until full payment.”

11.  A copy of exhibit “LHT-4” to Lau’s 1^st Aff is annexed hereto as Annexure 1.

12.  It can be seen from exhibit “LHT-4” that the plaintiff’s case is that the loan of $44,000,000 was granted on 5 February 2015 with interest having been charged as from that date up to 4 September 2017 and continuing.  In other words, the plaintiff’s claim is actually not based on a loan granted pursuant to the Final Loan Application, being a document which came into existence well after 5 February 2015.

13.  The fact that the plaintiff’s claim is based on a loan advanced in 2015 and not later is made clear in the letter of demand dated 6 March 2017 issued by Messrs Eric Yu & Co (“EY & Co”), the solicitors for the plaintiff, to the defendant (“the 2017 Demand Letter”).  In the second paragraph of that letter, it is said : -

“We refer to the above Legal Charge dated 5^th February 2015 (‘the Legal Charge’) made between you as the Borrower and our client as the Lender and the Application Form dated 14^th October 2016 whereby you covenanted with our client to repay the sum of HK$44,000,000.00 on demand together with interest at the rate of 3.8% per month accrued thereon from 5^th May 2015 until payment.”

The 2017 Demand Letter has also been exhibited as “LHT-3” to Lau’s 1^st Aff.

THE CASE OF THE PLAINTIFF

14.  The plaintiff called only two witnesses, namely, Lau and one Chung Kwok Keung (“Chung”), a conveyancing clerk in EY & Co.

15.  The case of the plaintiff as presented can be summarized as follows : -

(1)     According to Lau, around October 2014, when Lau was a clerk working for a firm of solicitors doing mainly probate work, he would also help other people to obtain loans in return for commissions for himself.  Through a Madam Wong So Heung (“Madam Wong”), he got to know a Mainlander by the name of Zhang Xian Jie (“Zhang Senior”).  Zhang Senior was the legal representative (法定代表人) of a Mainland company by the name of 「珠海保稅區中港展覽展示有限公司」(Zhuhai Free Trade Zone Zhong-Gang Exhibition Co Ltd) (“the Zhuhai Company”).  Zhang Senior was interested in obtaining a loan of RMB 300 million for the purpose of the development of a red wine exhibition centre by the Zhuhai Company.  In the course of that, he also got to know the son of Zhang Senior by the name of Zhang Jing (“the Son”).  There was not much progress in obtaining that loan from anybody.

(2)     In December 2014, Madam Wong told Lau that the Zhuhai Company urgently needed a loan in the sum of $45 million to settle the construction costs of the said wine exhibition centre.  The Son then approached Lau to discuss the matter.  The Son told Lau that the Zhuhai Company had a wholly-owned subsidiary in Hong Kong, namely, the defendant, and that the defendant had various lots of land in Hong Kong which could be used as security.

(3)     Lau had known the family of one Wong Wing Chung (“WWC”) for years.  Lau asked WWC whether he was interested in providing a loan.  WWC showed interest.

(4)     Lau then negotiated with the Son about the terms of the proposed loan.

(5)     The loan was to be granted by WWC through a company, namely, the plaintiff.  The plaintiff is a BVI company whose sole shareholder is WWC’s wife, Diana Wong, and whose sole director is WWC. The reason why WWC’s wife is the only shareholder of the plaintiff is that WWC does not want to appear in the front line.

(6)     The Son took to Lau a whole suitcase containing all the title deeds and documents of the LC Lots which were to be used as security for the proposed loan.  Lau’s own firm was reluctant to handle the mortgage transaction and therefore Lau instructed EY & Co to handle it.  The persons doing this on behalf of EY & Co were Eric Yu (“Mr Yu”), a partner, and Chung, a conveyancing clerk, in that firm.

(7)     By a Loan Application Letter dated 26 January 2015 (“the 26/1/2015 Loan Application”), the defendant applied to the plaintiff for a grant of a loan in the sum of $45 million for 3 months on the security of the LC Lots and paying interest at the rate of 2.5% per month, totaling $3,375,000 to be deducted from the loan first.  This document was drafted by Lau and was signed by the Son on behalf of the defendant.

(8)     An identical version of the 26/1/2015 Loan Application  dated 2 February 2015 (“the 2/2/2015 Loan Application”) was signed by Zhang Senior and one Chu Tan Neng (“Chu”), both directors of the defendant.

(9)     The 2/2/2015 Loan Application was supported by the minutes of a board meeting of the defendant attended by Zhang Senior and Chu wherein it was resolved, inter alia, that the defendant should by those 2 persons execute a legal charge as security for a loan from the plaintiff for $44 million.

(10)   Zhang Senior and Chu then signed a letter addressed to EY & Co referring to the “Legal Charge/Equitable Mortgage” and authorizing EY & Co to make the following payments : -

“1. A sum of HK$3,375,000.00 in favour of the Lender being the interest;

2. A sum of HK$281,250.00 in favour of Energy Saving Company being the service charges;

3. A sum of HK$281,250.00 in favour of Wong So Heung being the service charges; and

4. The net amount after deducting the above items 1, 2, 3 and the costs and disbursements to Eric Yu & Company in favour of Fung Shing Overseas Trading Company Limited instead of our name.”

(11)   According to Lau’s evidence, he admitted that the sum of $281,250 payable to the Energy Saving Company was in effect commission to him and his brother for arranging the loan and that the other sum of $281,250 payable to one Madam Wong was commission to her for introducing the Son to Lau for the arrangement of the loan.  The Fung Shing Overseas Trading Company Limited (“Fung Shing”) was a company used by the defendant to help it remit money to the Mainland to be paid to the Zhuhai Company.

(12)   Lau stated that there was never any facility letter issued or formal loan agreement signed between the plaintiff and the defendant.

(13)   Subsequently, Zhang Senior and Chu executed the Legal Charge.

(14)   On 5 and 6 February 2015, EY & Co transferred $41,004,220 to Fung Shing.  Fung Shing then converted $40 million into RMB32 million and remitted it to the Mainland to 18 recipients who received the split up sums on behalf of and paid the same over to the Zhuhai Company.  EY & Co paid the remaining sum of $1,004,025 out of the said sum of $41,004,220 into an account of the Son in Hong Kong.

(15)   By 5 May 2015, the defendant had not repaid the $45 million loan to the plaintiff.

(16)   The defendant through the Son applied to the plaintiff for an extension of the loan.  He signed a Loan Extension Application Letter dated 5 May 2015 (“the 1^st Extension Application”) on behalf of the defendant whereby the defendant : -

(i)     applied for an extension of the $45 million loan for 1 month until 4 June 2015, paying interest at the rate of 3.5% per month (agreed at $1,575,000);

(ii)    agreed to pay in advance 0.5% thereof (agreed at $225,000) to the plaintiff with all incidental expenses;

(iii)   agreed to pay the plaintiff the remainder thereof in the sum of $1,350,000 on 4 June 2015.

(17)   The said payment in advance in the sum of $225,000 was made by the Son by way of his personal cheque.

(18)   The defendant failed to make any repayment by 4 June 2015.

(19)   The defendant applied for a further extension.  The son on behalf of the defendant signed another Loan Extension Application Letter dated 4 June 2015 (“the 2^nd Extension Application”) on behalf of the defendant whereby the defendant : -

(i)     applied for another extension of the $45 million loan for 1 month until 4 July 2015 paying interest at the rate of 3.5% per month (agreed at $1,575,000);

(ii)    agreed to pay on 18 June 2015 the previously unpaid interest in the sum of $1,350,000 together with interest on the same for 14 days in the sum of $22,050 and part of the interest on this second extension (altogether totaling $2,722,500);

(iii)   agreed to pay on June 2015 the other part of the interest on this second extension in the sum of $225,000.

(20)   The said sum of $225,000 was paid by the Son on behalf of the defendant by way of another personal cheque of his.

(21)   The said sum of $2,722,050 was not paid by the defendant on 18 June 2015.

(22)   The said loan of $45 million was not repaid by the defendant on 4 July 2015.

(23)   The defendant through the Son applied for a third extension for a period of 10 days until 14 July 2015 for repayment of the loan and the various other sums.  The Son signed on behalf of the defendant another Loan Extension Application Letter dated 6 July 2015 (“the 3^rd Extension Application”) the second and third paragraphs of which read as follows : -

“監於本公司經濟上短期出現困難，現本公司再一次向貴公司申請延期償還該借貸並繼續用該土地作抵押為期10 天或少於10 天由2015年7月5日起 (以十天為限)。應貴公司同意本公司要求第三次延期償還該借貸，本公司萬分感激。本公司，下簽字，同意、確認及接受該10 天延期借貸利息為4% (以月息計算) (即每日約港幣$63,839.40元整) 由2015年7月5日起 (以十天為限)。同時本公司亦同意、確認、接受及承諾於2015年7月14日或該日前一次性全部償還‘該借貸’(即港幣$45,000,000元整) 及相關延期償還利息及費用，計算如下：-

(1)	該借貸	港幣$45,000,000.00
(2)	第一次延期償還利息	港幣$1,350,000.00
(3)	第一次利息到期未付引起的(14天)利息	港幣$22,050.00
(4)	第二次延期償還利息	港幣$1,350,000.00
(5)	延期償還利息費用	港幣$157,500.00
		_______________
		港幣$47,879,550.00
(6)	10 天延期借貸利息(以月(指30天)息4%按
	港幣$47,879,550計算)	每日港幣$63,839.40

另外本公司負責支付一切行政帕費用港幣15,000及有關費用　(如有的話)予貴公司。”

(24)     No repayment whatsoever had been made by the defendant by 14 July 2015.  The son then signed yet another Loan Extension Application Letter dated 17 July 2015 (“the 4^th Extension Application”) asking for a further extension of time for repayment of the various sums from 15 July 2015 until an unnamed date.  The relevant part of it reads as follows : -

“監於本公司經濟上確實短期出現困難及已組安排另一機構貸款，所以現本公司再一次向貴公司申請延期償還該借貸並繼續用該土地作抵押為期 ＿＿天由2015年7月15日起。應貴公司同意本公司要求第四次延期償還該借貸，本公司十萬分感激。本公司，下簽字，同意、確認及接受該＿＿天延期借貸利息為4% (以月（指30天計算）息計算) (即每日港幣$63,839.40元整) 由2015年7月15日起。同時本公司亦同意、確認、接受及承諾於2015年7月＿＿日或該日前一次性全部償還”該借貸”(即港幣$45,000,000元整) 及相關延期償還利息及費用，計算如下：-

(1)	該借貸"	港幣$45,000,000.00
(2)	第一次延期償還利息	港幣$1,350,000.00
(3)	第一次利息到期未付引起的(14天)利息	港幣$22,050.00
(4)	第二次延期償還利息	港幣$1,350,000.00
(5)	延期償還利息費用	港幣$157,500.00
		_______________
		港幣$47,879,550.00
(6)	10 天延期借貸利息(以月(指30天計算)息4%按
	港幣$47,879,550計算) 由2015年7月5日至
	2015年7月14日	每日港幣$63,839.40
(7)	第三次延期付款行政費用	港幣$15,000.00
		_____________
		港幣$48,532,944.00

另外是次延期引起貴公司不便，本公司負責支付是次行政費用港幣15,000及有關費用(如有的話)予貴公司。”

(25)   All the said Loan Extension Applications had been drafted by Lau and put to the Son for signature on behalf of the defendant.

(26)   After July 2015, the defendant had not been able to make any repayment to the plaintiff.  The Son requested Lau to help the defendant to locate other lenders who would be willing and able to lend money to repay the money it owed to the plaintiff.  The efforts made by Lau were in vain.

(27)   Eventually, at the beginning of 2016, the defendant was able to secure a purchaser for the LC Lots and the EM Lots. By two provisional agreements for sale and purchase both dated 5 January 2016 and made between the defendant and a company whose English name was Smart Lion Community (Group) Investment Limited (“Smart Lion”), the defendant agreed to sell and Smart Lion agreed to purchase the LC Lots for the sum of $180 million and the EM Lots for the sum of $20 million.  The two initial deposits payable and paid thereunder amounted to $6 million in total.

(28)   EY & Co were instructed by the defendant as its conveyancing solicitors in the abovementioned transactions.

(29)   Unfortunately, Smart Lion was unable to complete the purchase and the said initial deposits in the sum of $6 million were forfeited to the defendant.

(30)   A Statement of Account was then issued by EY & Co to the defendant in the following terms : -

“STATEMENT OF ACCOUNT
Deposits :	HK$6,000,000.00
Less :
Interests to the Mortgagee :	5,840,000.00
Costs and disbursements to Eric
Yu & Company :	160,000.00
	_____________
Amount due to you :	N I L
	============ ”

The “Mortgagee” was the plaintiff and the said sum of $5,840,000 was paid over to the plaintiff.

(31)   After the said payment of the sum of $5,840,000 as interest, the defendant did not make any further payment or repayment to the plaintiff.

(32)   On 28 July 2016, the plaintiff issued an originating summons in HCMP 1936/2016 (“HCMP 1936”) against the defendant. The reliefs claimed in HCMP 1936 were identical to those in the OS in the present case.  It does not appear that HCMP 1936 was supported by any affidavit or affirmation.  Hence, it is not known how much the plaintiff was claiming against the defendant in HCMP 1936.

(33)   There next came into existence the minutes of a board meeting of the defendant held on 12 October 2016 signed by Zhang Senior which recorded that it had been resolved, inter alia, that :

(i) the defendant should sign a loan application letter addressed to the plaintiff in the terms of the attachment thereto;

[No attachment thereto has been produced in evidence]

(ii) the defendant should accept the terms of the said loan application letter and would authorize the Son to represent the defendant in signing it.

(34)   There then came into existence the Final Loan Application referred to in paragraph 10 above which is dated 14 October 2016, signed by the Son on behalf of the defendant and countersigned by Lau as a witness.  This was also drafted by Lau.  A copy of Final Loan Application is annexed hereto as Annexure 2.

(35)   The Final Loan Application is to the effect that, in relation to the loan of $44 million (not $45 million), it is agreed confirmed and accepted, inter alia that : -

(i)      interest should be charged at the rate of 2.5% per month from 5 February 2015 to 4 May 2015 and in the sum of $3,300,000 payable in advance to the plaintiff;

(ii)     from 4 May 2015 onwards, the defendant would pay interest on all sums unpaid and to be repaid at the rate of 3.8% per month;

(iii)    for the avoidance of doubt, from the date of this document, all sums previously paid to the plaintiff should be treated as payment of interest;

(iv)    that the 1^st, 2^nd, 3^rd and 4^th Extension Applications and/or any oral agreement between the plaintiff and the defendant are declared to be of no effect and that they are superseded by this document itself.

(36)   On 8 March 2017, a Notice of Discontinuance was filed in HCMP 1936.

(37)   On 6 March 2017, EY & Co issued to the defendant the 2017 Demand Letter.

(38)   On 24 March 2017, the plaintiff issued the present proceedings.

16.  Pausing here, I note that disclosure was made by Lau in the course of his cross-examination by Mr Chan for the defendant that prior to HCMP 1936 being issued, there was actually a letter of demand dated 14 June 2016 issued by EY & Co on behalf of the plaintiff to the defendant (“the 2016 Demand Letter”).  This document is of crucial importance in this case.  I shall deal with it in due course.

SOME STOCK-TAKING

17.  At this juncture, it would be appropriate and useful for me to do some stock-taking on a number of points arising from the case of the plaintiff as presented.

A.  The modus operandi of the plaintiff

18.  First, according to Lau, there has never been any facility letter issued by the plaintiff to the defendant or any loan agreement signed between the plaintiff and the defendant.

19.  Secondly, it is Lau’s evidence that all the Loan Applications and Loan Extension Applications referred to above had been drafted by Lau himself and put to the Son or Zhang Senior and Chu for their signatures.  It is quite obvious, and I so find, that the terms of the said Loan Applications and Loan Extension Applications must have been agreed between Lau acting for the plaintiff and the Son and/or Zhang Senior and Chu acting for the defendant.  Indeed, Lau has given evidence to that effect.  In his 2^nd Affirmation, he said in paragraph 21 as follows : -

“21. Not much took place after the commencement of the earlier originating summons. The Defendant did not acknowledge service of the proceedings. There was further discussion about giving the Defendant more time. In the end I concluded another extension agreement with Mr Zhang Junior representing the Defendant i.e. the Loan Application Form referred to in paragraph 2 of my 1^st Affirmation. This agreement made on 14 October 2016 was the last extension agreement the Plaintiff reached with the Defendant.”

[emphasis added]

I find as a fact that those documents in fact recorded and constituted agreements between the plaintiff and the defendant at various stages, despite the fact that they contain only signatures of representatives of the defendant but not those of any representative of the plaintiff, except in the case of the Final Loan Application on which Lau signed as a witness only.

B.  Loan for $45 million or $44 million

20.  It will be noted that all the said Loan Applications and Extension Application Letters, except the Final Loan Application, stated that the loan in question was in the sum of $45 million.  It was only in the Final Loan Application that the loan was stated to be in the sum of $44 million.

21.  In such circumstances, I take the view that I should treat the original loan as one for $45 million, notwithstanding the fact that the Legal Charge and the Equitable Mortgage charged different lots of land as security and that the case presented by the plaintiff is on the basis of a loan of $44 million secured by the Legal Charge on the LC Lots only.

C.  One loan or different loans

22.  The question has arisen as to whether the loan of $45 million from the beginning is to be treated as one loan all the way or whether every time when there was an application for extension which was agreed to by the plaintiff the same should be treated as a new loan.

23.  On the authorities, I find that it is the latter.  In other words, every time when there was an application for an extension and there was a renewal on the expiry of the loan period previously in force, a new loan came into existence.

24.  In the case of New Japan Securities International (HK) Ltd v Lim Yiong Lin [1987] 3 HKC 153, the plaintiff, a licenced moneylender, made loans to the defendant which had been applied to discharge his respective accrued liabilities for principal and interest under earlier loans.  Each of the loans was made for a period of 3 months and simple interest was payable.  These loans were successors of earlier loans on similar terms under which the defendant had defaulted and had been rolled over in the sense that the plaintiff made fresh loans to the defendant of sums sufficient to discharge his accrued liability for principal and interest.  The defendant argued that the plaintiff’s conduct amounted to a device to charge compound interest on the original loan which was forbidden under the provisions of the Money Lenders Ordinance Cap 163 (“Cap 163”).  The judge found for the defendant and the plaintiff appealed.  The Court of Appeal held that the loans sued upon were new loans which, since they neither directly nor indirectly provided for the payment of compound interest, were recoverable.  In the judgment of Kempster JA, he said at pages 155F – 156F as follows : -

“Deputy Judge Barnett, having rightly held that rolling over involved the making of fresh loans, went on to say and find:

It seems to me in the present case to be flying in the face of reality to say that indirectly no compound interest is being levied by the rolled over loans. However viewed, there is an element in the new or the rolled over loans of interest accrued but unpaid, and it seems so me to defy common sense to say that is not compound interest.

For my part I am satisfied that this conclusion was erroneous. Having referred to BS Lyle Ltd v Chappell [1932] 1 KB 691 the judge emphasized a passage from the judgment of Scrutton LJ at p 702 which reads:

The case must go back for a new trial, in which the effect of the two prima facie harsh rates of interest, will have to be considered, and the question of compound interest investigated.

Also of possible relevance is what that Lord Justice had earlier observed, obiter at p 699:

It seems obvious that by reason of the provisions of ss 7, 15 sub-s 2, and the First Schedule, compound interest is being charged on this transaction.

The judge failed to allow for the fact that the other members of the court, Greer and Slesser LJJ, expressed no such reservations. Had he been afforded the advantage vouchsafed to us of being referred to judgments which those Lord Justices later gave in BS Lyle Ltd v Chappell he would surely have come to a different conclusion. The reference to that authority is [1938] 158 LT 242 at p 243 being a note to Re British Games Ltd.

In BS Lyle Ltd v Chappell at p 243 Greer LJ stated:

But in my judgment BS Lyle Ltd v Chappell [1932] 1 KB 691 decides conclusively that if the transaction means that the money is lent to the borrower and that the borrower with that money pays off the old loan, the court is no longer in a position to treat the transaction as a mere renewal, notwithstanding the observations of Scrutton LJ. What has happened is that the old loans have been paid off and a new loan has been entered into, and the position is exactly the same as it would have been if the borrower had borrowed from someone else the money necessary to repay the old loan and obtained a new loan – from the money lenders.

To like effect Slesser LJ:

The present transaction being identical with that in BS Lyle Ltd v Chappell it is not open to the borrower to deny that the transaction was a new loan and a new transaction. In these circumstances, it is clear that, whether the sum which was released did or did not include compound interest, there was no compound interest leviable under the agreement of 16 September, other than interest which was covered by the proviso to s 7 of the Act of 1927.

All three Lord Justices in their earlier decision had emphasized that the last of the rolled over loans was recoverable as a new loan.  I am satisfied that the loans here sued upon are new loans which, since neither directly nor indirectly do they provide for the payment of compound interest, are recoverable.”

[emphasis added]

25.  In view of the clear words of Kempster JA, especially those underlined in the passage quoted above, I am very surprised to find the following passage in paragraph 9-083 on page 733 of Chitty on Contracts  Hong Kong Specific Contracts (6^th ed) : -

“ Restriction on payment of compound interest. Pursuant to s.22(1)(a) of the MLO, any agreement made for the loan of money shall be illegal if it provides directly or indirectly for the payment of compound interest. As with other issues under the MLO, the court will consider the substance of a transaction in determining whether compound interest is payable. This was clear in the case of New Japan Securities Int’l (HK) Ltd v Lim Yiong Lin. The action concerned straightforward loans of money, comprising six loans in total. Each of the loans was for a period of three months. Each of the first five loans was rolled over (i.e. each such loan together with interest accrued on it was not repaid on the maturity of the loan but were refinanced by a new loan equal to the aggregate of the principal amount of the former loan and the interest accrued on it), while the sixth loan was not. The court found that there was an element of interest accrued but unpaid in the five rolled over loans, and accordingly they did include an element of compound interest. Accordingly, they were illegal pursuant to s.22(1)(a).”

[emphasis added]

Unless I am seriously mistaken, the words underlined in the passage quoted from Chitty above seem to be completely contrary to the decision by the Court of Appeal in New Japan.

26.  The New Japan case has been followed subsequently.  See Honip Credit Ltd v Tang Wing Hong [2018] HKCFI, [2018] HKCU 160 and Hong Kong Property Mortgage Ltd v Ng Lai Ping [2018] 4 HKC 559 @572 paragraphs 49 – 51.

27.  Indeed, it is the submission by Mr Yau and Mr Lee, counsel for the plaintiff, that each extended loan should be treated as a new loan.  In paragraph 50 of the Plaintiff’s Closing Submissions dated 15 May 2019, they say as follows : -

“50. We respectfully submit that an agreement to extend the loan existed independently of the original loan agreement, although it serves to vary the term of the latter such as the due date of repayment or interest during the extended period.”

28.  The significance of this point will be seen in due course.

D.  The relevant provisions in Cap 163 about excessive interest rates

29.  Part IV of Cap 163 consisting of sections 24 and 25 deals with excessive interest rates.

30.  Section 24 reads as follows : -

“24. Prohibition of excessive interest rates

(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).

(3)   The Legislative Council may by resolution alter the rate specified in subsection (1):

Provided that in relation to any agreement for the repayment of any loan or for the payment of interest on any loan which is in force at the date when such rate is so altered, the rate so specified as at the coming into force of such agreement shall continue to apply.

(4)   Any person who commits an offence under this section shall be liable –

(a)   on summary conviction to a fine of $500,000 and to imprisonment for 2 years;

(b)   on conviction on indictment to a fine of $5,000,000 and to imprisonment for 10 years.

(5)   Nothing in this section shall apply to –

(a)   a loan specified in paragraph 12 in Part 2 of Schedule 1;or

(b)   as respects such loan, any person who makes such loan.”

31.  Paragraph 12 in Part 2 of Schedule 1 referred to in section 24(5)(a) quoted above reads as follows : -

“12. (a) A loan made to a company that has a paid up share capital of not less than $1,000,000 or an equivalent amount in any other approved currency.

(b) For the purposes of this paragraph approved currency (認可貨幣) means a currency –

(i)   freely convertible into Hong Kong dollars; or

(ii)  approved in writing by the Registrar for the purposes of this paragraph.”

32.  In the above context, it is to be borne in mind that the defendant is a company with a paid up share capital of only $100,000. Hence, if it turns out that the plaintiff in lending or offering to lend money to the defendant at an effective rate of interest of over 60% per annum, paragraph 12 in Part 2 of Schedule 1 will not provide any exemption from the application of section 24 to the plaintiff.

33.  The relevant parts of section 25 read as follows : -

“25. Reopening of certain transactions

(1) Subject to section 24(2), where –

(a) proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

(b) subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate.

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

(2) For the purposes of this section, a transaction is extortionate if –

(a) it requires the debtor or a relative of his to make payments (whether unconditionally or on certain contingencies) which are grossly exorbitant; or

(b) it otherwise grossly contravenes ordinary principles of fair-dealing.

(3) Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair.

(4) In determining whether a transaction is extortionate for the purposes of this section, regard shall be had to such evidence as is adduced concerning –

(a) interest rate prevailing at the time it was made;

(b) the factors mentioned in subsections (5) and (6); and

(c) any other relevant considerations.

(5) Factors applicable under subsection (4)(b) in relation to the debtor include –

(a) his age, experience, business capacity and state of health; and

(b) the degree to which, at the time of entering into the transaction, he was under financial pressure, and the nature of that pressure.

(6) Factors applicable under subsection (4)(b) in relation to the lender or other person by whom the proceedings are taken include –

(a) the degree of risk accepted by the lender, having regard to the nature and value of any security provided;

(b) his relationship to the debtor;

(c) whether or not a specious cash price was quoted for any goods or services included in the transaction; and

(d) where one or more other transactions are to be taken into account, the question how far any such other transaction was reasonable required for the protection of the debtor or the lender, or was in the interest of the debtor.

…………………………………………………… .

(9A) Nothing in this section shall apply to –

(a) a loan specified in paragraph 12 in Part 2 of Schedule 1; or

(b) as respects such loan, any person who makes such loan.

(Added 69 of 1988 s. 21)

(10)   In this section debtor (債務人) means any person primarily liable for the repayment of a loan or for the payment of interest in respect of a loan.”

34.  The terms “effective rate” and “interest” are defined in section 2(1).  The relevant parts of section 2(1) read as follows : -

“(1) In this Ordinance, unless the context otherwise requires -

effective rate (實際利率), in relation to interest, means the true annual percentage rate of interest calculated in accordance with Schedule 2;

 Interest (利、利息) does not include 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;”

[emphasis added]

Section 1(2) and (3) read as follows : -

“(2) For the purposes of this Ordinance, where by an agreement for the loan of money the interest charged on the loan is not expressed in terms of a rate, any amount paid or payable to the lender under the agreement (other than simple interest charged in accordance with the proviso to section 22) shall be appropriated to principal and interest in the proportion that the total amount of principal bears to the total amount of the interest, and the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2 shall be deemed to be the rate of interest charged on the loan.

(3) For the purpose of determining the amount of the principal of a loan, any amount thereof which is not shown to have been lent except for the purpose of treating it as an instalment paid by the borrower in repayment of the loan and which is so treated by the lender shall be disregarded.”

35.  Insofar as is relevant to the present case, Schedule 2 reads as follows : -

“ Schedule 2

Calculation of True Annual Percentage Rate of Interest

1. Any amount paid or payable to the lender under the agreement (other than simple interest charged in accordance with the proviso to section 22(1)) shall be appropriated to principal and interest in the proportion that the total amount of principal bears to the total amount of the interest.

2. The amount of principal outstanding at any time shall be taken to be the balance remaining after deducting from the principal the total of the portions of any payments appropriated to principal in accordance with paragraph 1.

3. The several amounts taken to be outstanding by way of principal during the several periods ending on the dates on which payments are made shall be multiplied in each case by the number of calendar months during which those amounts are taken to be respectively outstanding, and there shall be ascertained the aggregate amount of the sum so produced.

4. The total amount of the interest shall be divided by one-twelfth part of the aggregate amount mentioned in paragraph 3 and the quotient, multiplied by one hundred, shall be taken to be the rate of interest per cent per annum.

…………………………………………… .”

36.  Regarding the determination of the “effective rate of interest” in any particular case, it was decided by the Court of Appeal in Kwok Ying Lung v Ko Chi Hung (CACV 635/2000 & CACV 142/2001) (Unreported Judgment 25/5/2001) that there were two alternatives in ascertaining the effective rate of interest : “the actual rate” and “the deemed rate”.  The deemed rate would be the one calculated by reference to the formula set out in Schedule 2 to Cap 163.  On page 11, Le Pichon JA said : -

“ In my judgment, Schedule 2 to the Ordinance has no application unless the interest payable under a loan is not capable of being expressed in terms of an actual rate per cent per annum. In such a case, the calculations set out in Schedule 2 yield a deemed rate.”

[emphasis added]

As pointed out by Yuen JA on page 14, the “actual rate” formulation would not be applicable in a case where the agreement was for periodic repayments to be made consisting of both an element of principal and an element of interest.

37.  In due course, I will have to assess the “effective rate of interest” applicable in the present case in accordance with the above principles.

THE CASE OF THE DEFENDANT

38.  The defendant did not call any of the Son, Zhang Senior and Chu as a witness.  Instead, it called one Zhang Yuanyue (“ZYY”) and one Wang Li Hong (“Wang”) to give evidence.

39.  The case of the defendant as submitted by counsel for the defendant in their Closing Submissions can be summarized as follows : -

(1)     The defendant does not admit the authenticity of the signatures and of the application of the company chop on the various documents relied on by the plaintiff or of the common seal of the defendant on the Legal Charge.

(2)     The defendant does not admit the authority of Zhang Senior, Chu and the Son to act for itself in signing and executing the various documents relied upon by the plaintiff.  The Son was not even a director of the defendant and had no official capacity within the defendant.

(3)     Furthermore, there was collusion on the part of the plaintiff and the Son and/or Zhang Senior in the grant of the loan and the extensions thereof.

(4)     Originally, it was the case of the defendant that neither it nor the Zhuhai Company had received any part of the loan through Fung Shing or anyone else.  It was subsequently accepted by the defendant in the course of the trial that the Zhuhai Company had received money from the said 18 recipients but it had no knowledge as to the source of money paid to the Zhuhai Company by the said 18 recipients because these 18 recipients had other dealings with the defendant.

(5)     The plaintiff was a money lender who had not been registered as such under Cap 163 and had not complied with the formalities required under Cap 163.

(6)     The plaintiff has been guilty of deliberately hiding documents from the defendant and the court by not making full discovery of documents as it was duty-bound to make.

(7)     Even if the loan and the extensions were genuine, the plaintiff had charged interest against the defendant at effective rates of over 48% per annum or, alternatively, over 60% per annum.  In the circumstances, the plaintiff should suffer the consequences as prescribed under the relevant provisions of Cap 163.

DISCUSSION

A.  Challenge to authenticity

40.  I deal first with the challenge by the defendant of the authenticity of the signatures of the Son, Zhang Senior and Chu and of the company chop on the various documents and of the common seal of the defendant on the Legal Charge.

41.  In this regard, there is the evidence of Lau to the effect that he had witnessed the signatures of the Son, Zhang Senior and Chu on all the Loan Applications and the Extension Applications relied on by the plaintiff and also there is the evidence of Chung to the effect that he witnessed the execution of and the application of the common seal of the defendant on the Legal Charge by Zhang Senior and Chu.  The signatures on the various documents and the application of the common seal of the defendant on the Legal Charge all appear to be normal and proper on the face of them.  The defendant has not adduced any expert evidence on handwriting or on the possibility of forgery having been committed.  The burden is on the defendant to prove such allegations.  The defendant has not discharged such burden.

42.  In the circumstances above, I find that the challenge by the defendant on the question of authenticity fails.

B.  Challenge to authority and the allegation of collusion

43.  The evidence of Zhang Senior and Chu is to the following effect : -

(1)     ZYY was and is actually the majority shareholder (60%) of the Zhuhai Company and Zhang Senior was a 40% shareholder.  ZYY had contributed his part of the share capital in the sum of RMB80 million into the company whereas Zhang Senior had failed to contribute the RMB53 million due from him.

(2)     Zhang Senior’s wife was in charge of the financial affairs of the Zhuhai Company.  On the other hand, the Son had no official position in the company.

(3)     ZYY and Chu would seldom come to Hong Kong.  The management of the defendant was left to Zhang Senior.

(4)     Chu was invited by Zhang Senior to become a director of the defendant.

(5)     Zhang Senior and the Son conducted the affairs of the defendant with a view to benefiting themselves and at the expense of Zhuhai Company and ZYY.

(6)     ZYY and Chu had absolutely no idea about the loan transactions between the plaintiff and the defendant.  They were not given notice of any of the alleged board meetings of the defendant in relation to the said loan transactions.

(7)     There are a lot of suspicious features about the signing of the various Loan Applications and Loan Extension Applications, mostly by the Son.  There are also suspicious features about the production and signing of the various alleged minutes of board meetings of the defendant.

(8)     The plaintiff through Lau was well aware of the lack of authority on the part of the Son, Zhang Senior and Chu, but Lau colluded with them.

44.  The allegations of lack of authority and collusion have been denied by Lau.  He said that he honestly believed that Zhang Senior and Chu as directors had authority to act for the defendant and, further, that the Son had been lawfully delegated by the board of the defendant to act for it.

45.  The plaintiff relies on the protection offered by Cap 622 to innocent outsiders dealing with a company on the basis of apparent authority.  The relevant parts of section 117 of Cap 622 provide as follows : -

“117. Transaction or act binds company despite limitation in articles etc

(1) Subject to section 119, in favour of a person dealing with a company in good faith, the power of the company’s directors to bind the company, or authorize others to do so, is to be regarded as free of any limitation under any relevant document of the company.

(2) For the purposes of subsection (1) –

(a) a person deals with a company if the person is a party to any transaction or any other act to which the company is a party;

(b) a person dealing with a company is presumed, unless the contrary is proved, to have acted in good faith;

(c) a person dealing with a company is not to be regarded as acting in bad faith by reason only of the person’s knowing that an act is beyond the directors’ powers under any relevant document of the company; and

(d) a person dealing with a company is not required to inquire as to the limitations on the power of the company’s directors to bind the company or authorize others to do so.

………………………………………………………………………

(6) In this section –

relevant document (有關文件), in relation to a company, means –

(a) the company’s articles;

(b) any resolutions of the company or of any class of members of the company; or

(c) any agreements between the members, or members of any class of members, of the company.”

46.  The defendant, on the other hand, relies on cases such as Thanakharn v Akai Holdings Ltd (No. 2) (2010) 13 HKCFAR 479 and submits that the defendant through Lau had at least turned a blind eye to the possible lack of authority on the part of the Son, Zhang Senior and Chu in relation to the loan transactions, despite the suspicions which he must have.  The defendant relies on the judgment of Lord Neuberger NPJ where at paragraph 53 he referred to Lord Blackburn’s explanation in the case of Jones v Gordon (1876 – 77) 1 App Cas 616 @628 – 629 about the meaning of “blind eye knowledge” as follows : -

“[I]f the facts and circumstances are such that the [judge comes] to the conclusion that he was not honestly blundering and careless, but that he must have had a suspicion that there was something wrong, and that he refrained from asking questions, not because he was an honest blunderer or a stupid man, but because he thought in his own secret mind – I suspect there is something wrong, and if I ask questions and make further inquiry, it will no longer be my suspecting it, but my knowing it, and then I shall not be able to recover – I think that is dishonesty.”

47.  The burden again is on the defendant to prove that the plaintiff through Lau did have “blind eye knowledge” of the alleged lack of authority.

48.  I am not satisfied that the defendant has discharged that burden on the following basis : -

(i)      The son was in possession of a whole suitcase of original title deeds and documents of the LC Lots which he took to Lau which fact suggests that he had been authorized by the defendant to deal with the proposed loan on its behalf.

(ii)     Zhang Senior and Chu were directors of the defendant on its record.  They had possession of what was apparently the common seal of the defendant.  They executed the Legal Charge.

(iii)    The Son was introduced to Lau by Zhang Senior as his son.

(iv)    Madam Wong represented to Lau that she was well acquainted with Zhang Senior.

(v)     If there were suspicions on the part of Lau, he would most likely not have wanted to put the plaintiff at risk for such a substantial sum of $45 million.

(vi)    There is evidence that the plaintiff through EY & Co did pay out sums totaling $45 million, including a sum of $40 million to Fung Shing to be remitted to the Zhuhai Company indirectly.

49.  In all the circumstances, I hold that the defendant fails in its defence based on lack of authority and collusion between the plaintiff and/or Lau on the one hand and the Son and/or Zhang Senior on the other hand.

C. Was the plaintiff a “money lender” within the meaning of Cap 163?

50.  I next deal with the question as to whether the plaintiff was and is a “money lender” within the meaning of Cap 163.

51.  It is admitted by the plaintiff that it has not been registered as a “money lender” under Cap 163 and that none of the formality requirements in respect of the loan under Cap 163 had been complied with.  In such circumstances, if it is found that the plaintiff was a money lender when it made the loans to the defendant, then such loans would not be recoverable and the security thereon would not be enforceable.

52.  Section 2 of Cap 163 defines the term “money lender” as follows : -

“money lender (放債人) means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include –

(a) a person specified in Part 1 of Schedule 1; or

(b) as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan;”

[emphasis added]

Section 7 reads as follows : -

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

(1) 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.

(2) A licence shall be in the prescribed form.”

Section 23 reads as follows : -

“23. Loan etc. not recoverable unless money lender licensed

No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:

Provided that if the court is satisfied that in all the circumstances it would be inequitable if a money lender who did not satisfy it that he was licensed at the relevant time was thereby not entitled to so recover such money or interests or to enforce such agreement or security, the court may order that the money lender is entitled to recover such money or interest or to enforce such agreement or security to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

Section 18(1) reads as follows : -

“18. Form of agreement

(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless –

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.”

53.  The law is summarized in Chitty on Contacts  Hong Kong Specific Contract (5^th ed) on page 723 – 724 at paragraph 9-047 as follows : -

“In order to prove that a person carries on business as a moneylender, the court previously considered that it was necessary to prove some degree of system and continuity in his money-lending transactions. In Supreme Design Fashion Ltd v Michael Hope International Ltd, the plaintiffs tried to argue that because there was a series of letters of credit, there was a series of loans and this was enough to establish system and continuity. In making this argument, the plaintiffs sought to rely on the case of R v Morgan in which a party who made a series of loans to one borrower over a period of a year was held to be carrying on business as a moneylender. The argument was rejected on the basis of the specific facts of the case in that there was only one contract (the agency agreement) between the defendant and the plaintiff and the contract was for a series of advances but the total was fixed at any one time and accordingly repayment followed on one fixed event (being the delivery of the relevant goods). However, this issue was considered more recently by the Court of Appeal in Chow Wun Sing v Yiu Chun Luk. The case concerned a loan by the plaintiff to the defendant which would be secured by a mortgage over certain property. The plaintiff in question was the director of various companies that were in the business of money lending and which had refused to grant the defendant a loan. The defendant had then approached the plaintiff who eventually agreed to extend the loan. The defendant subsequently sought to argue that the loan was illegal as the plaintiff was carrying on the business of a money lender without a licence as required by the MLO. The defendant’s argument was that ‘the documentation [for] the loan were clear and properly prepared, and that the plaintiff had kept a good record of the interest payments and had computer-generated repayment schedules. It is said that the plaintiff had used elaborated loan documents and kept in place a sophisticated system of management. The court held that the test for deciding whether a person or company was carrying on the business of money lending included considering whether at the time of any loan the business of the person was that of making loans. This can be seen as a circular test. A degree of circularity was removed by the court by characterizing it as a test based on the facts of the case. Therefore, ultimately the courts will need to evaluate the facts of the case to see whether there is anything in the nature of a business. For the purposes of the test, a degree of system and continuity are relevant but not determinative factors. On the facts of the case, the court concluded that although the plaintiff was ‘business-like’ in his approach to the loan and there was therefore a degree of system, this was not determinative of the question of whether he was carrying on the business of a money lender. Rather, taking into account the wider context (including the fact that the defendant had been reused a loan by the companies of which the plaintiff was a director) the court took the view that the plaintiff had made a personal loan and had used his background in the money-lending business to maintain a professional approach to the loan.”

54.  In the English case of Conroy v Kenny [1999] 1 WLR 1340, it was held by the Court of Appeal that a person was in the business of moneylending within section 6 of the Moneylenders Act 1900 if at the relevant date his business was  moneylending, whether or not be carried on other business as well, provided the transaction in question constituted moneylending; that section 6 did not require evidence of a number of loans at interest to other borrowers in order to show that the business of moneylending was being carried on; that on the evidence it was clear that when dealing with the defendant in 1971 the partnership was carrying on the business of moneylending; and that, accordingly, the business being unlicensed, the action would be dismissed.

55.  It is to be noted, however, that there is a difference between the definition of “money-lender” in section 6 of the Money-Lenders Act 1900 and the definition of “money lender” in Cap 163.  The former reads as follows : -

“The expression ‘money-lender’ in this Act shall include every person whose business is that of money-lending, or who advertises or announces himself or holds himself out in any way as carrying on that business ………. .”

As pointed out in paragraph 52 above, the definition of “money lender” in section 2 of Cap 163 is based on a “business ………… of making loans”.  It is quite apparent that the definition in the Hong Kong Ordinance is modeled upon the definition in the English Act but with the difference stated above.  I do not know whether it was a deliberate act on the part of the Hong Kong legislature.  The Conroy case was referred to in the judgment of the Court of Appeal in the Chow Wun Sing Winston case (referred to in Chitty cited above) but the court did not advert to the difference between the two definitions.  It is possible that under the Ordinance, before a lender can be classified as a “money lender”, he would have had to make more than one loan, not including the subsequent renewals of the original loan, as in the present case.  On this point, I say no more as the point had not been argued before me.

56.  Here, the evidence by Lau is that other than the loan of $45 million granted by the plaintiff to the defendant with the subsequent renewals, the only other loan ever granted by the plaintiff was a loan of $11 million to a person by the name of Cheng Kong Nam for 12 months at an interest rate of 15% per annum.  The defendant has not been able to adduce any evidence of other loans granted by plaintiff to other borrowers, although there is an allegation that the plaintiff was engaged in some loan business in Macau.  It is possible that WCC as a person may have granted other loans to other borrowers by using other companies as vehicles.  There is no evidence of that and I must not speculate.  On the evidence and treating the plaintiff company as a separate legal entity from the two persons behind it, I am not satisfied that I can hold the plaintiff to be a “money lender” within the meaning of Cap 163.

57.  I therefore find against the defendant on the point that the plaintiff acted as an unlicensed money lender who had not complied with all the necessary formalities in granting the loan and its renewals to the defendant.

D.  The late discovery of the 2016 Demand Letter

58.  The way that the 2016 Demand Letter emerged is as described below.

59.  In the course of cross-examination on 6 May 2019, Mr Chan for the defendant referred Lau to the 2017 Demand Letter. He then asked him whether there might have been a similar demand letter issued by EY & Co to the defendant prior to the commencement of HCMP 1936. Lau replied and said that he had asked Mr Yu to issue one, but he did not have a copy of that letter.  He said that Mr Yu would have to be asked about it.  Mr Yu was not called as a witness in this case.

60.  On the morning of 7 May 2019, the next day, a copy of the 2016 Demand Letter was disclosed to the court by Mr Yau who had obtained it from Chung.  It was eventually produced and marked as Exhibit P9.  A copy of the 2016 Demand Letter is annexed hereto as Annexure 3.

61.  Pausing here, it is to be noted that Lau had already given evidence to the effect that he usually communicated with the Son by WeChat but that he had subsequently deleted all WeChat messages between himself and the Son because there were too many messages.  It was suggested to him by Mr Chan that he deleted all such messages because he did not want to show what communications there had been between him and the Son.

62.  As a result of the intervention of two witnesses, ZYY and Wong, on 7 May 2019, Mr Chan did not start to deal with the lately discovered 2016 Demand Letter until 8 May 2019, when both Lau and Chung were re-called for further cross-examination.  At the beginning of that day, Mr Yau also stated to the court that the plaintiff was not relying on the 2016 Demand Letter.

63.  The gist of the evidence of Lau is as follows : -

(i)      He was shown a copy of the 2016 Demand Letter on 7 May 2019 in the office of EY & Co.  He only glanced at it for 1 or 2 minutes.  He did not ask for a copy.

(ii)     Despite the fact that the 2016 Demand Letter was marked “cc client”, no copy of it had ever been given to Lau or anyone else in the plaintiff.

(iii)    It was Lau himself who had given instruction to EY & Co to issue the 2016 Demand Letter.  He only gave some figures to EY & Co.  As to how the letter was to be written, he had no opinion.  He did not see the draft of the letter before it was issued.  He actually refused to be supplied with or to keep a copy of that letter.

(iv)    The relevant parts of the evidence of Lau in the course of cross-examination by Mr Chan went as follows : -

“問：咁裡面嘅指示都係你畀律師樓嘅？

問：咁裡面嘅指示都係你畀律師樓嘅？

答：啲數我畀律師樓。

問：嘅數，所有指示都係你喇，成封咁樣追法，追呢啲 數，出呢封信，裡面嘅資料都係你畀㗎喇，係咪？

答：總之我凈係畀數之嘛，追咩嘢數吖嘛，而家。

問：Okay，你畀數，...

答：入面點樣打呢，我哋冇意見吖嘛。

問：Okay，得，得，係，啲數你畀律師樓？

答：係。

問：咁跟住睇番封信，出咗之後有cc畀你，應該係畀番你哋㗎，你睇過㗎。

答：唔係，我就話我唔要，我應該就話「唔要㗎喇，你 律師搞，okay㗎喇，我相信律師，咁因為我唔係做呢一瓣，你畀我都冇意思，總之你出咗封信就得㗎喇，就係通知個--通知被告人公司，就要追數。」

問：我哋慢慢嚟喇，而家，你話你唔要，我哋講番詳細情況先，你唔要封信呀？

答：我叫佢做嗰啲，梗係相信律師樓，「嗱，你幫我追喇。」咁樣，咁咪得囉。

問：唔係，你答我問題喇。

答：係。

問：唔使咁緊張，慢慢嚟。你話你唔要係唔要乜嘢？唔要呢封信？

答：唔要呢封信個副本。

問：Okay。

答：「你話你出咗得㗎喇。」我話。

問：你幾時同佢講㗎？

答：我畀咗指示佢，佢搞掂，咁佢話--通知我，「出咗喇。」咁樣，我唔使--唔使畀副本嘅。

問：我哋慢慢嚟，慢慢嚟，急冇用。

答：係。

問：你就畀咗指示佢出封信喇。

答：係。

問：咁佢出咗封信，個draft有冇畀你睇呀？

答：冇。

問：唔使問你？

官：即係出之前有冇畀佢睇。

問：出之前有冇畀你睇過？

答：冇。

問：冇。

答：因為我唔識吖嘛，你畀我睇都冇用，我凈係畀條數佢。

問：唔係，等陣先，慢慢嚟。

答：係。

問：唔使解釋咁多嘢住，你大把機會。

答：係。

問：你話你唔識，你係唔識英文定唔識個內容，定唔識乜嘢？

答：唔識嗰個訴訟嗰啲追租--追嗰啲信嗰啲內容吖嘛，我唔知佢點樣寫㗎嘛，「總之我畀條數你，幫我追呢條數。」

問：Okay，我哋慢慢嚟。

答：係，係。

問：你話你唔識個內容，唔知佢點寫。

答：係。

問：咁係咪更加需要--正正因為你唔知佢點寫，更知需要知道佢點寫，寫得啱唔啱呢，表唔表達到意思呢，係咪正常呢？

答：我--余律師做㗎嘛，即係律師做嘅嘢，我唔係律師吖嘛，律師做嘅嘢係即係保障個客。

問：係，咁你都要--你對你個銀主都有責任，你要睇佢點寫㗎，或者佢寫錯呢。

答：啲數啱嘅--啲數啱咪okay囉。

問：咁啲數啱嘅，係咪，呢度？

答：係。

問：Okay，咁你都會想睇㗎。

答：個總數啱㗎，當時。

問：即係簡單嚟講，出之前係律師樓冇畀你睇過？

答：冇。

問：係咪你要求，「你千祈唔好畀我睇呀。」咁樣？

答：你講嘅啫，我冇。

問：冇，冇要求，但係佢都冇畀你睇就出咗喇，第一？

答：係。

問：等我理解你講嘅嘢先，慢慢嚟。卒之冇畀你睇過，你又冇叫佢唔好畀你睇。

答：係。

問：第二，出咗喇，根據呢封信寫呢，就cc畀客，應該係你嘅，我理解，咁有冇畀你睇呢？

答：冇，我話唔要吖嘛。

問：Okay，你廣東話就係講「唔要。」通常佢哋cc畀你，一係佢就寄畀你，一係fax畀你，一係e-mail畀你？

答：係。

問：咁佢點樣話畀你知出咗畀你呢？

答：咪我--佢話畀一個副本我，我話「唔使喇，...」

問：慢慢嚟講，幾時同你講話畀個副本你㗎？

答：我諗多數都係出完之後㗎喇。

問：點講法呀？打電話...

答：我唔知...

問：...同你講？

答：梗係打電話畀我喇。

問：即係打電話畀你？

答：係，「我搞掂喇。」

問：就話「劉生，搞掂喇，畀個副本你。」

答：係喇，我話「唔使喇，你搞掂晒得喇。」

問：我哋慢慢嚟。

官：邊個同你咁講？

答：當時鍾生同我講。

官：哦。

答：係。

問：Okay。

答：係，同埋另外就早之前有個職員嘅，我唔記得佢嗰個名。

問：Okay。

答：佢應該係鍾生嘅訴訟部，個職員會同我講呢件事嘢，我咪個--畀--一早我畀咗鍾生嘅數㗎喇。

……………………………………………………………………………………………………

官：咁你唔關心，如果萬一律師樓嗰度打錯嗰啲數目，打少咗，咁你個老細咪好蝕底，即係...

答：如果佢呢封信係錯嘅，佢哋自己糾正㗎嘛，唔係--唔關我事㗎嘛。

………………………………………………………………………………………………………

問：我向你指出，就係實情唔係724、725，係根據呢封信裡面所寫，係有個協議，係你經張敬--你同張敬或者張敬爸爸好，點都好，同被告公司同意過嘅。

問：我向你指出，就係實情唔係724、725，係根據呢封信裡面所寫，係有個協議，係你經張敬--你同張敬或者張敬爸爸好，點都好，同被告公司同意過嘅。

答：不同意。

問：不同意。

答：冇呢件咁嘅事。

問：咁呢個就係反映咗你同被告公司曾經有嘅協議。

答：絕對係錯，你作故仔。

問：事實上，喺今次嘅訴訟裡面呢，有好多你同被告公司嘅協議你係冇披露嘅，同唔同意？

答：唔同意，你作故仔。

問：由包括一開始呢個法律按揭裡面提到呢啲facility letter，同埋後期你描述同張敬傾談嘅協議呢，其實係好多協議你冇披露嘅。

答：錯。

問：你同被告公司...

答：唔同意。

問：...真正達到嘅協議呢，其實就喺呢一封信PP9裡面寫咗出嚟，點樣還錢。

答：錯，唔同意。

問：但係你哋深深知道呢，就係其實如果跟你同被告公司嘅協議呢，你哋係有違法嘅行為，係有違法，係違反借貸人協議，你係知道嘅。

答：你作故仔，唔同意。

問：咁喺咁嘅情況之下呢，你就同張敬佢哋特登想簽一份申請借貸書，亦都係文件夾179號，就試圖去掩蓋呢個違法嘅行為，...

答：唔同意。

問：...同唔同意？

答：我冇犯法。

問：咁你同唔同意...

答：你嘅指控...

問：你做179係為咗掩蓋呢個違法嘅行為，之前呢個非法借貸嘅行為，所以特登做份咁樣嘅協議，...

答：由...

問：...179呢份，同意定唔同意？

答：由day 1到--直到而家，都冇做違法行為，唔同意你所講，你喺...

問：唔同意就得喇。

答：係。

問：唔同意，你先講咗唔同意先，唔同意。咁今次呢個訴訟呢，就係你想攞呢個所謂頭先179文件我所提嘅10月14號呢，就係掩蓋過往嘅違法行為，重新想做一個申請，係有心嘅，其實所有目的呢，就係...

答：我攞咗法律意見。

問：...掩過呢個放款人條款去做。

答：我攞咗法律意見。

問：你想唔想講你法律意見係乜？

答：唔講。”

[emphasis added]

The document at page 179 of Hearing Bundle 1 is the Final Loan Application.

64.  It is to be noted that when Lau was being cross-examined, Chung chose to stay in the court room. Thus, he was able to listen to Lau giving evidence.

65.  The gist of Chung’s evidence is as follows : -

(i)      Chung had been a conveyancing clerk in various solicitors’ firms for over 30 years.  He had been with EY & Co for 11 years.

(ii)     The 2016 Demand Letter was written by a litigation solicitor in EY & Co, a Mr Amus Chan, who had since left EY & Co.

(iii)    Chung notified Lau of the issue of the 2016 Demand Letter and asked him to collect it, but Lau did not do so.

(iv)    Chung himself had also not seen the 2016 Demand Letter before it was issued.  It was signed by his boss, presumably Mr Yu.

(v)     He said he saw the 2016 Demand Letter for the first time only 2 days before, on 6 May 2019.

(vi)    He said it looked like the interest rate stated in the 2016 Demand Letter was not correct and that his colleague had made a mistake.  He said it should have been $45 million at 4% per annum.

(vii)   The relevant parts of Chung’s evidence in the course of cross-examination by Mr Chan went as follows : -

“官：好，咁而家exhibit P9。

MR CHAN：P9。

問：首先睇番呢封信，你頭先都聽到晒劉生講咩嘢㗎喇。

答：唔。

問：第一，佢就話呢封信呢，雖然寫住‘cc client’ ，就其實冇畀過佢嘅。

答：唔。

問：係咪有啲咁嘅事？

答：呢個就通知咗佢，咁嚟講就--即係如果佢有--通知咗佢話「封信出咗喇，咁嚟講你上唔上嚟囉？」佢話「如果就--擺喺你度先喇。」佢就咁如果過開嚟呀，有需要就攞。

問：即係呢度寫cc client就冇畀過佢嘅，其實當時？

答：等佢嚟攞。

問：Okay。咁你除咗叫佢嚟攞，其實可以寄畀佢、e-mail畀佢、fax畀佢都得嘅啫，係咪？

答：哦，通常我哋--通常冇喎。

問：咁作為寫--你係寫呢封信嘅人喇，...

答：呢一封唔係我寫，litigation同事寫嘅。

問：邊個寫㗎？

答：陳生。

問：陳乜嘢？

答：Amus走咗㗎喇。

問：陳乜嘢？

答：陳--個全名我唔知。

問：英文呢？

答：Amus。

問：點串？

答：A-M-U-S。

問：係。

答：Amus Chan。

問：Chan？

答：唔，唔。

問：唔知...

官：A-M-U-S？

答：唔。

MR CHAN：A-M-U-S。

官：Chan。

問：咁佢當時喺你公司做咩嘢㗎？

答：Litigation。

問：我哋睇番呢封信，你意思唔係你寫㗎？

答：唔係我寫嘅，litigation。

問：咁你聽到頭先劉生話佢畀指示係畀你㗎喎，係咪畀你㗎？

答：冇錯。

問：咁我哋睇番封信嘅第1版右上角，寫住 “Please reply to Mr Chung” ，係咪你嚟㗎？

答：啱。

問：封信所有嘅資料就畀你嘅，reply又係你，咁呢封信唔係你寫？

答：呢封信一定唔係我寫嘅，litigation嗰邊㗎嘛，呢度有，我做conveyancing㗎嘛。

問：咁點解要rely係reply to你呢？封信又唔係你出。

答：哦，因為呢個case嗰啲爭錢嗰啲我知㗎嘛，即係做legal charge嗰陣時，個聯絡人吖嘛。

問：你做咗幾耐，呢個時候？

答：三十幾年。

問：都係做咩嘢...

答：Conveyancing。

問：冇做過任何嘢，...

答：冇。

 ………………………………………………

問：咁我哋講番呢封信。劉生畀指示你出呢封信，代表原告公司？

答：係，佢委託我哋公司。

問：但係佢話指示係畀你嘅，佢委託你公司，但係經你。

答：唔，唔。

問：你同唔同意佢講法？

答：我同意。

問：咁裡面佢畀你嘅指示呢，就包括追幾多錢嘅，係咪？

答：佢有條數畀我哋㗎嘛。

問：係。

答：係囉。

問：咁而家劉生你聽到佢嘅講法呢，就係你搞錯咗佢畀嘅數，咁你可唔可以講話呢個數據你嘅理解，第2版寫，係唔係準確反映劉生畀你嘅意見--...

答：邊條...

問：...畀你嘅指示？

答：邊個數呀？

問：第2段裡面particulars嗰個追嘅數喇。

答：Total數囉，total outstanding amount。

問：唔。即係你--當然我知你而家講，就話唔係你寫吖，不過因為指示係畀你，你梗有責任跟進㗎，係咪？

答：唔，唔。

問：你睇過先出㗎，呢封信。

答：哦，呢封信，呢封信係老細出㗎嘛，唔係我出㗎，老細簽㗎嘛。

問：你有冇睇...

答：哦，佢指--佢畀指示我，我就畀啲數個同事，跟住同事整完之後畀老細簽㗎嘛，唔關我事。

問：你有冇睇過，出之前？

答：我冇點睇過呀，跟住。

問：即--唔係，冇乜點睇過即係出之前你有睇過定冇睇過呢？

答：出之前我冇睇過，唔關我事，litigation嗰邊搞㗎嘛，呢啲嘢。

問：你冇睇過，唔關你事？

答：係囉，我根本都唔知。

問：即係出之前你冇睇過？

答：冇睇過。

問：幾時出你都唔知㗎喇，因為你冇睇過。

答：哦，出完就知，出完佢通知我，咪通知劉生，因為10月--即係到時通知我，佢話...

問：簡單嚟講，...

答：...到時個客會還錢，會聯絡我㗎。

問：出之前你就冇睇過嘅？

答：唔，唔。

問：出咗之後幾耐話畀你知？

答：出完之後個同事--然之後個同事咪通知我，「喂，封追數嗰封信出咗喇。」咁你--咁跟住我咪通知劉生出咗，劉生話「哦，okay喇，你哋...」咪得囉。

問：咁嗰個階段你有冇睇下？

答：冇。

問：劉生（鍾生?），我向你建議，你講緊大話，因為出之前你一定有睇過，同唔同意？

答：唔同意。

問：不如我咁問你喇，呢封信寫住reply to就係你，唔係余律師，唔係做--陳生，嗰個做--Amus Chan，litigation，右上角，你見到喇。

答：唔。

問：出封demand letter畀人，叫人哋聯絡你，但係你所講嘅就係你根本佢出信嘅內容你都冇睇過。

答：唔。

問：有冇可能出封畀人，叫人聯絡你，係你連內容都唔知道㗎？

答：但係我之前畀咗個數，我知個數吖嘛，跟住個客...

問：好，慢慢嚟先，...

答：...譬如呢啲債仔

問：...你諗清楚合唔合邏輯，如果你話係就係喇。呢封信聯絡人，即係有關詳情呀，負責--寫名道姓就係你本人，而你話出封信你睇都冇睇過，出完都冇乜點睇，但係聯絡人就係你，唔覺得好奇怪嘅咩？

答：你聽我講埋咪知合唔合邏輯喇。

問：唔係--好，你講。

答：因為條數呢，劉生畀咗我之後，我知條數大約幾多，我話畀同事聽嘅，咁譬如假設嗰個債仔，講得唔好聽喇，打電話嚟，佢問我，咁我--梗係我同佢講喇，我同事邊度知咁多嘢啫，喺度就。

問：咁但係封信--請你答番我問題喇，我唔覺得你答咗我問題，咩嘢邏輯，邏輯就係你做咗成二十幾三十年律--唔好意思，我而家講笑，成三十年律師樓。

答：唔。

問：三十幾年律師樓，出封信畀人，裡面寫住聯絡人係你，而你今日喺法庭畀嘅證供就係出封信之前、之後，你都冇點睇過，即係人哋搵就係要搵你去答封信，但係出之前，你完全都唔--連內容都唔知嘅，你個講法係咁吖嘛。

答：人搵我，譬如去傾settle啫，...

問：唔係，你個講法係咁先，我想釐定你係咪咁嘅意思先？你係咁嘅意思講咗，我哋錄咗音，你係咁嘅意思吖嘛？

答：嗰個意思，佢出咗之前我都冇睇過。

問：好。咁佢出之後幾時第一次睇過裡面內容？

答：我冇特別留意入面嘅內容呀，呢度就，...

問：咁但係你...

答：由--頭先都講咗喇。

問：...琴日去「抄」封信嘅時候，係你第一次知道個信嘅內容？

答：琴日，係囉，...

MR YAU：前日。

答：...因為我琴日...

問：前日，sorry，前日，I am sorry。

答：唔，唔。

問：即係你一生人第一次睇到呢封信嘅內容就係前日你「抄」番呢封信出嚟嘅時候，係定唔係？

答：唔，唔，啱。

問：唔好「唔，唔」呀，我唔知咩嘢叫「唔，唔」。

答：啱吖。

問：你講緊大話，你喺前日之前，一定知道呢封信個內容，同意定唔同意？

答：唔同意。

問：我哋搞清楚，呢封信簽名係咪余兆明律師本人簽名㗎？

答：係，余律師個簽名嚟嘅。

問：劉生--鍾生，你做咗咁多年律師樓，負責啲按揭，當然我假設係包括同人追錢嗰啲㗎喇，根據啲legal charge。

答：追錢嗰啲唔係我做，永遠都。

問：咁而家出呢啲信，即係去enforce一個legal charge，你有做過喇。

答：Enforce legal charge嚟講，呢單第一單，我做咁耐啲mortgage，都未試過。

問：即係三十幾年嚟，你做conveyancing嘅生涯，你未試過involve落enforce個legal charge嘅？

答：冇錯。

問：呢個係第一單？

答：冇錯。

問：人生嘅第一單？

答：冇錯。

問：咁以你三十幾年嚟，喺律師樓做，你又知唔知香港有個《放款人條例》，係對利息係有規限嘅，借錢貸款嘅利息，知定唔知？

答：聽過。

問：聽過啲咩嘢？

答：聽過有個《放債人條例》。

問：唔。咁知唔知裡面某啲利息係會干犯一個刑事嘅法律嘅？

答：過60吖嘛。

問：你知嘅？

答：頭先--知，頭先你哋喺庭都不斷咁講，呢度就。

問：唔係，我而家--幾時知先？

答：之前我都知。

問：之前即係幾時？即係2000年代知？九幾年知？或者出呢封信嘅時候知唔知？呢封信個日子嘅時候知唔知，16年6月14號？

答：16年10月--唔係，我之前都知嘅。

問：即係6月14號你係知嘅？

答：6月14號之前都知，知咗好耐㗎喇，呢度。

………………………………………………………………………………………

問：撇開到底係咪違法，最少你唔會想睇睇封信，你畀嗰啲數字係準確嘅抄番落去嘅咩，你冇責任嘅咩？人哋搵你一個人咋喎，劉生信你咋喎，你覺得你唔需要睇一睇先出嘅咩？

答：我諗我唔需要睇，我諗係睇都係公司睇咋，我冇個--就算畀我，我都未必知，都未必識。

問：我講唔係話你知唔知、識唔識，而係裡面準唔準確寫番出劉生畀你嘅指示啫，你都覺得唔需要睇？

答：我咪啲指示畀晒個同事囉，寫咗啲嘢喺度，劉生畀咁多咪畀咁多。

問：咁呢個寫出嚟而家呢封信同你嘅指示係一致㗎，你唔會作啲嘢落去㗎，係咪？

答：嗰啲figure我睇番落去，而家啱呀。

問：啱嘅？

答：個figure啱，...

問：即係呢啲figure裡面全部都係...

答：...個total outstanding...

問：裡面所寫嘅嘢係正確反映咗劉生畀你嘅instruction嘅？

答：個total outstanding amount就啱，但係你個interest應該係--佢咁樣寫就好似就唔啱，應該就--個instruction就唔係咁嘅。

問：不如我哋咁講吖，你一生人第一次睇呢封信，就前日攞番出嚟。

答：唔，唔。

問：之前你睇都唔睇嘅，咁你而家突然間又醒番起幾年前其實畀你個instruction呢，可能呢度個明--你而家睇得明喇，你睇唔明就冇得講，你明唔明先，裡面寫嘅數？

答：我明，佢有啲figure喺度吖嘛。

問：Okay，等等，等法官閣下寫低先。咁你而家明喇，咁你突然間呢兩日醒起，喂，其實可能有個instruction佢唔係咁畀你，你搞錯咗喎，係咪咁嘅意思？

答：邊--你講邊...

問：呢封信係咪搞錯咗...

答：唔係，邊個你...

問：...劉生畀你嘅instruction。

答：你講話邊個instruction搞錯咗？

問：你話畀我知有冇錯，如果冇錯就唔使問喇。

答：你嘅instruction係...

問：如果全版信都係合符劉生畀你嘅指示，唔係你嘅律師樓搞錯，或者有錯誤呢，我就唔使問喇，有冇錯先？

答：如果照睇，應該係個further interest嗰度應該就唔係咁寫。

問：你係咪記得係咁樣？

答：啱，因為劉生嘅指示話$45,000,000，4厘息。

問：咁正常嚟講，你作為呢個接收訊息嘅人，你唔會搞得錯㗎，係咪？

答：唔。

問：咁所以點解會錯呢？唔知，係咪？

答：係搞錯，可能個同事整錯啫佢。

問：會唔會你錯呀？

答：我梗係唔會喇，我搞得出嚟，點會錯啫。

問：你唔會錯，係你同事整錯？

答：如果我照咁睇，應該佢誤解咗我意思。

問：你估咋，係咪？

答：我諗佢咁打落應該係添喇。

問：你頭先講咗「照咁睇呀」、「應該呀」，你係咪記得當日劉生係畀你指示係$45,000,000，但係呢封信呢，你畀你同事指示又係$45,000,000，4厘，但係出咗嚟就唔係，你係咪咁嘅意思？

答：啱啱呢幾日睇番咪係囉。

問：唔係，我哋咁講喇，...

答：一定係。

問：...首先劉生畀你嘅instruction係$45,000,000，個息係...

答：唔，唔，4厘。

問：4厘嘅，咁跟住你畀同事都係嘅？

答：唔，唔。

問：咁但係邊個同事係搞錯咗呀？講佢名，Amus Chan？

答：打個同事喇，應該係。

問：即係邊個？

答：Amus Chan。

問：Amus Chan。咁有冇同老細講過㗎？老細都唔會盲目出封信㗎，...

答：咁我冇同佢...

問：...簽落去㗎。

答：我凈係同個同事講㗎咋，嗰度就。

問：咁你老細呢，余兆文律師呢，佢冇問過你，就咁簽個名落去？

答：余兆明。

問：吓？

答：余兆明。

問：余兆明冇問，就咁簽個名落去？

答：我唔知佢喎，佢...

問：佢有冇問過你呢？

答：邊個？

問：余兆明呀。

答：老細冇問過我喎，佢睇個instruction嚟做㗎嘛。

問：咁個instruction係咪你寫落去畀Amus Chan？

答：劉生畀我咪畀佢囉。

問：你係咪寫落去㗎？

答：劉生畀咁多我，我咪畀咁多落去囉，嗰度就。

問：咁冇理由錯㗎。

答：我唔知喎，呢度就。

問：唔係你唔知，係你講緊大話，剛剛，實情當時劉生畀你嘅instruction就正正反映晒喺呢封信度，同意定唔同意？

答：一定唔同意，都唔係事實。

問：你唔同意係因為你知道出咗事喇，可能有違法行為，所以你就講大話話唔同意，同唔同意？

答：一定唔同意。

問：得，明白。好喇，除咗呢個錯誤之外，即係話應該係--你講嗰個錯誤應該係點話？即係劉生畀嘅instruction有邊樣反映到喺呢封信度，你講多次，簡單講。

答：$45,000,000 4厘息，追落去。

問：唔。你記得係咁講嘅？

答：唔，唔。

問：咁你有冇察覺到如果咁樣計，計埋上面啲手續費嗰啲嘢，就算$45,000,000 4厘息，都過48個per cent㗎？

答：我冇為意喎，呢樣。

問：唔緊要。好喇，咁除咗呢度錯，其他啲數有冇錯呀？你而家--前日睇番喇，一生人第一次睇呢封信喇，有冇再check過仲有冇邊度錯㗎？你講晒佢喇，有冇呢？

答：我冇--我唔知喎，呢個。

問：唔好唔知呀，你睇咗㗎嘛，你又指到...

答：條數我都唔知佢點...

問：...一度係錯喇，...

答：條數我都唔知佢點計出嚟㗎，有啲數喺度就，佢個指示係--啲同事計出嚟㗎嘛，啲數喺度就，我點會...

問：同事計？唔係劉生...

答：...exactly嘅figure啫

問：...計畀你嘅咩？唔係劉生話追幾多嘅咩，同事計出嚟嘅咩？劉生計咗畀你，一定係你自己再搵同事計，定係你計呀？

答：根據嗰個貸款嗰--冚����唥寫晒喺度㗎喇，佢哋嗰陣時喺度就。

問：如果我去計，其中第三個item二千零幾萬呢，就所有貸款協議都唔係計到呢個數嘅，咁我唔知你點計，你可以話畀我哋知點計。

答：唔係我計，我都唔知點計。

問：即係你都唔知點計？

答：我都唔知點計，唔係我計。

問：但係你會唔會唔同意我講法，定係你唔知--如果我向你指出，呢個第三條數，$20,721,456呢條數係所有有文字嘅貸款協議，呈咗堂嘅，大家睇到嘅，都計唔到呢條數出嚟，你同意定唔同意？

答：我唔知喎，呢個數。

問：我向你指出，呢個數係劉生畀你嘅指示。

答：唔同意。

問：咁你意思即係出呢封信如果有錯漏嘅時候，就係你律師行裡面有人搞錯咗喇，係咪？

答：如果有錯漏就一定係喇。

問：係你律師行做錯嘅啫？

答：唔，唔。

問：我向你指出，律師行冇做錯，因為佢哋寫番--原原本本寫番劉生畀佢嘅指示啫，同意定唔同意？

答：唔同意。”

[emphasis added]

MY FINDINGS IN RELATION TO THE 2016 DEMAND LETTER

66.  I find Lau to be an evasive witness.  I do not accept his evidence that he just gave instructions to Chung to issue a demand letter to the defendant just by giving him a sum or some sums.  Looking at the 2016 Demand Letter itself, it sets out the various sums claimed in great detail.  It must have been based on some document or documents before that letter could have been written in the way it was.  I also cannot believe that Chung would have just given a sum or some sums to Amus Chan as alleged and Amus Chan (if he really was the person who drafted the letter) would then have been able to write the 2016 Demand Letter.  I further cannot believe that Mr Yu could have signed the 2016 Demand Letter blindly without having checked the accuracy of the letter against some document or documents.

67.  It is to be borne in mind that neither Amus Chan nor Mr Yu had been called as a witness for plaintiff.

68.  I further find that it is quite incredible that Lau, with his long experience of working as a clerk in various solicitors’ firms and as someone appointed by the plaintiff to manage and deal with the loan granted to the defendant, would not have wanted to check the accuracy of the figures in the 2016 Demand Letter before it was issued.  I find his allegation that he actually declined to be supplied with a copy of it even after it had been issued and that he only glanced over the letter for 1 or 2 minutes for the very first time on 6 May 2019 to be pure fantasy.

69.  I equally find Chung’s evidence that he had nothing much to do with the 2016 Demand Letter except to give instruction to Amus Chan to issue it to be incredible.  He was the person named in the letter to be replied to or contacted by the defendant.  He could not have been ignorant of the contents of the letter as he has alleged. I find that he was just tailoring his evidence to fit in with the evidence of Lau as he had heard it whilst being present in the court room all the time.

70.  I find as a fact that there must have been at least one document, either in the form of a loan application or loan extension application or a loan agreement, recording an agreement between the plaintiff and the defendant, on which the 2016 Demand Letter was based which has not been disclosed by the plaintiff.

71.  It is quite obvious that the plaintiff is trying to avoid the 2016 Demand Letter like a plague for the reason that it does not wish the court to find that there was actually an agreement made between the plaintiff and the defendant the terms of which are reflected by the claim made in the 2016 Demand Letter.  The plaintiff had no choice but to disclose the existence of the 2016 Demand Letter in the middle of the trial because of the questions put to Lau by Mr Chan about the issue of HCMP 1936.

72.  I further find that the withdrawal of HCMP 1936, the subsequent agreement between the plaintiff and the defendant in the terms of the Final Loan Application as well as the non-disclosure of the 2016 Demand Letter were all as a result of the realisation by the plaintiff that the agreement between the plaintiff and the defendant in the terms as reflected by the 2016 Demand Letter was seriously problematic.

73.  It is trite law that where there has been no satisfactory explanation for the absence of documents which should on the evidence be in existence, the court is entitled to draw an adverse inference against the party who should be in possession of such documents that that party has something to hide.  See, eg, the judgment of Harris J in Tam Po Kei v Tam Bo Kin (No. 1) [2011] 1 HKLRD 537 @583 paras 118 – 119.  The present is an even more blatant case in that the disclosure of the very important 2016 Demand Letter was made in the middle of the trial and only when the plaintiff had no alternative but to disclose it upon cross-examination.

74.  I further take the view and I so find that Lau had deleted all the WeChat messages between him and the Son because they would have revealed something to the disadvantage of the plaintiff, very possibly regarding an agreement reached between the plaintiff and the defendant which eventually led to the issue of the 2016 Demand Letter.

THE EFFECT OF THE AGREEMENT THE TERMS OF WHICH ARE CONTAINED IN OR REFLECTED BY THE 2016 DEMAND LETTER

75.  I have to consider next the effect of the agreement the terms of which are contained in or reflected by the 2016 Demand Letter, in particular, the effective rate of interest charged thereunder, as found by me above.  In view of my finding of the existence of such an agreement between the plaintiff and the defendant, I shall for convenience refer to it as “the Agreement” below.

76.  As I have said, I shall have to determine the effective rate of interest charged under the Agreement.  For this purpose, I shall have to analyse the figures contained in the 2016 Demand Letter.

77.  In the course of writing my Judgment, I suddenly realised that the parties had not adequately addressed the question of calculation of the effective rates of interest on the different scenarios which might possibly apply.  I therefore directed the parties to make further submissions on the following : -

“(1) In the event that the Court were to decide that there was an agreement between the plaintiff and the defendant in the terms as contained in or reflected by the letter of demand from Eric Yu & Co to the defendant dated 14 June 2016 (Exhibit P9), what is the effective rate of interest per annum under such an agreement?

[In this connection, it is noted that the defendant has set out some calculations in relation to this question in its written submission entitled ‘Schedule Of Calculations By D On The Effective Interest Rate’ but that the plaintiff has not done a similar exercise.  The Court would also like counsel for the defendant to re-consider the said calculations to see whether they should be revised.]

(2) In the event that the Court were to decide that there was an agreement between the plaintiff and the defendant in the terms contained in the loan application letter [申請借貸書」dated 14 October 2016 (Exhibit P6), what is the effective rate of interest per annum under such an agreement?

[In this connection, it is noted that both the plaintiff and the defendant have not set out any calculations in relation to this question.]”

78.  The parties made further submissions accordingly.  The plaintiff’s further submissions are annexed hereto as Annexure 4 and the defendant’s further submissions are annexed hereto as Annexure 5.

79.  According to the defendant’s calculation, the effective rate of interest charged in the Agreement was either 101.22% per annum or 105.24% per annum.

80.  According to the plaintiff’s calculation, the effective rate of interest charged in the Agreement was 67.46% per annum.

81.  I first comment on the defendant’s calculations as shown in Annexure 5.  In relation to “Scenario I”, I think the figure $41,004,220 under paragraph 1 should be adopted because in addition to the sum of $40,000,000 which had been converted into RMB and remitted to the Zhuhai Company via the various individuals, the sum of $1,004,220 should also be counted as part of the money paid over to the defendant, since it was paid into the account of the Son by the instruction given by the Son on behalf of the defendant.  I am, however, puzzled by the use of the date of “14 October 2016” and also by the figure “502” in the context of “502/365 days”.  I therefore am not sure how exactly the defendant had arrived at the figure of “101.22%”.

82.  I next comment on the plaintiff’s calculations as contained in Annexure 4.  They are much simpler.  In relation to “Scenario I” in the defendant’s calculation, the plaintiff answers as follows : -

“Q(1) : 67.46% per annum

              ($63,241,006 x 4% x 12/$45,000,000 = 67.46%)”

That is a direct reference to the penultimate paragraph of the 2016 Demand Letter (Exhibit P9) which, according to my finding above, recorded the agreement between the plaintiff and the defendant reached sometime before the issue of the 2016 Demand Letter that a rate of 4% per month on the outstanding loan of $63,241,006 would be payable.  On the basis of the plaintiff’s own calculation, that rate amounts to an effective rate of $67.46% per annum.  I take the view, however, that in the calculation by the plaintiff as set out above, the figure of the principal used should be “$41,004,220” and not “$45,000,000”.  In those circumstances, the effective rate of interest charged under the Agreement was actually :

                74% per annum

                ($63,241,006 x 4% x 12/$41,004,220 = 74%).

83.  On my findings above, the agreement to charge interest on the outstanding sum of $63,241,006 at an effective rate of 74% per annum is clearly unlawful under section 24(1) of Cap 163.  In such circumstances, under section 24 (2), such agreement for the repayment of the loan in the sum of $63,241,006 and the security (under the Legal Charge and the Equitable Charge) are both unenforceable.  (See paragraph 30 above)

THE EFFECT OF THE FINAL LOAN APPLICATION

84.  In my judgment, the fact that, subsequently to the Agreement, the plaintiff and the defendant did enter into another agreement in the terms contained in the Final Loan Application does not assist the plaintiff.

85.  One of the points taken by the plaintiff is that its case is basically that the issuing of the 2016 Demand Letter was actually “an erroneous demand for interest”.  Its case is in fact based on the Final Loan Application.  In the event that the Court were to decide that the Final Loan Application was a means of covering up unenforceable demands of interest, the plaintiff submits that “the doctrine of locus poenitentiae applies – By entering into E5 [the Final Loan Application], the plaintiff has withdrawn from such demand for excess interest before the illegal purpose has been wholly or partly carried into effect. ……………………… payment of interest demanded at such excessive rate has never been made or received.”  (See Plaintiff’s Closing Submission (2))

86.  In my judgment, the doctrine of locus poenitentiae has no application in the present situation.  What section 24(1) and (2) forbid is the making of an agreement for a loan with interest charged at over 60% per annum.  As I have found, there was such an agreement reached between the plaintiff and the defendant.  Once such an agreement comes into existence, section 24 is triggered.

87.  In the case of Chan Ping Che v Gao Gunter (CACV 253/2014 Judgment handed down on 5 June 2017), the Court of Appeal rejected a similar argument.  At paragraph 23, it was said : -

“23. Mr Chan urged us to have regard to the fact that the plaintiff did not in fact claim default interest on the element of loan interest (and thus, according to Mr Chan, had not actually charged an effective rate of interest exceeding 60% per annum). However, as Mr Aiken pointed out, whatever the plaintiff might in fact have done was not relevant. What was relevant, for the purposes of section 24, was whether the loan agreement provided for the charging of interest at an effective rate of over 60% per annum. On the basis of Mr Aiken’s calculations, Loans A and C did (although Loan B did not).”

[emphasis added]

88.  In the case of Treasure Spot Finance Co Ltd v Li Chik Ming (HCA 5387/2001 Judgment handed down on 7 September 2007), which was decided by myself when I was sitting as a Recorder, the plaintiff money lender sought to amend its original claim by claiming less interest so as to avoid the consequences of breaching Cap 163.  I ruled against such attempt.  In paragraphs 132 – 134 of my Judgment, I said as follows : -

“132. It is not open to the Plaintiff to try to get out of the difficulty it faces by its Counsel simply saying that the Plaintiff would just claim simple interest at 40% per annum and waive the rest of its original claim.

133. One of the mischiefs which section 18 aims to prevent or address is that a money lender should stipulate that it charges interest at a certain rate on the face of the requisite note or memorandum whilst in actual fact he is charging interest at a much higher rate.

 134.   I therefore hold that the 3 loans have been rendered illegal and unenforceable by reason of sections 18(1) and (2), 29(4)(a) and 22(1)(c) of the Ordinance.”

89.  Furthermore, since no money was actually advanced by the plaintiff to the defendant under the Final Loan Application, it is actually not supported by any consideration.  The only possible consideration was an unenforceable loan which was rolled over. Hence, the Final Loan Application is equally tainted with the illegality.

CONCLUSION

90.  In view of my finding that the Agreement made between the plaintiff and the defendant as contained in or reflected by the 2016 Demand Letter whereby the plaintiff charged an effective rate of interest at over 60% per annum is unlawful under section 24(1), I have no alternative but to dismiss the plaintiff’s claim.

91.  On the other hand, I cannot see that defendant has lodged any counterclaim against the plaintiff pursuant to Order 28 rule 7 of the Rules of the High Court.  I therefore am not in a position to grant any relief to the defendant.

92.  Regarding the question of costs, in view of the conduct of the plaintiff in not having made full discovery of documents and my findings about the two witnesses for the plaintiff, I make an order nisi that the plaintiff should pay the costs of the proceedings to the defendant on an indemnity basis with a certificate for two counsel.

93.  The delay in the handing down of this Judgment is regretted.  It has been partly caused by the disruption to the normal operation of the Judiciary as a result of the coronavirus epidemic.

94.  Finally, it remains for me to thank counsel on both sides for their able assistance.