H.K. SOURCES FINANCE LTD v. LING KAI WAN PAUL AND ANOTHER

HCMP 3430/2013

[2024] HKCFI 1141

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3430 OF 2013

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JUDGMENT

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Table of Contents

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A.  INTRODUCTION

1.  This moneylender’s action was commenced by way of an originating summons by the plaintiff finance company (“P”) against the 1^st defendant (“D1”) who was the borrower and initially the sole defendant.

2.  The mortgaged property is situated at Ka Keng Court in Shatin (“Property”). It was purchased in the sole name of D1 on 16 November 2007 under the Home Ownership Scheme (“HOS”) of the Hong Kong Housing Authority (“HKHA”) with a mortgage loan from HSBC (“HSBC Mortgage Loan”) which was repaid and the Property was released on 10 June 2008.

3.  Some 5 years later, on 23 August 2013, D1 entered into a loan agreement (“1^st Loan Agreement”) with a finance company Pacific Financial Services Limited (“Pacific Financial”) for a loan secured by a legal charge over the Property (“1^st Legal Charge”). About two weeks later, on 6 September 2013, D1 entered into another loan agreement with P (“2^nd Loan Agreement”) for a loan secured by a 2^nd legal charge (“2^nd Legal Charge”).

4.  It is not disputed that P is and was at all material times a company with limited liability incorporated under the laws of Hong Kong, and was/is licensed to carry out money lending business under the Money Lenders Ordinance, Cap 163 (“MLO”).

5.  Less than a month after entering into the 2^nd Loan Agreement and the 2^nd Legal Charge, on 3 October 2013, D1 issued a divorce petition against his wife (“D2”) under FCMC13976/2013 based on their two years separation since about January 2010 (“Divorce Proceedings”)[1]. On 17 December 2013, D2 filed a Form 25 (Form A) Notice claiming ancillary relief against D1 in the Divorce Proceedings (“Form 25 Notice”), which was registered against the Property in the Land Registry on 19 December 2013.

6.  P issued the originating summons herein on 23 December 2013 against D1, for amongst other things (1) payment of all moneys due to P under the 2^nd Legal Charge; and (2) in default of payment, delivery of vacant possession to P of the Property.

7.  D2 applied for legal aid on 10 January 2014 in these proceedings and was granted the same on 18 February 2014.

8.  On 24 June 2014, D2 was granted leave to join these proceedings as a defendant.

9.  D1 failed to acknowledge service of the originating summons. Subsequently, on 10 November 2015, Master Lai granted an order for P to recover the sum of HKD 1,187,780 from D1 , secured by the 2^nd Legal Charge against D1, and interest thereon at the daily rate of HKD 715.91 from 2 October 2013 to 1 September 2014 and at the daily rate of HKD 260.33 from 2 September 2014 to the date of the order and thereafter at judgment rate until full payment (“Monetary Order ”)[2]. P’s claim for delivery of vacant possession was adjourned sine die on the same day.

10.  On 14 June 2016, Master Lai ordered that P’s originating summons to continue as if begun by writ and directions were given for the filing of pleadings[3]. On 24 April 2017, D2 issued a third party notice on Pacific Financial Services which then became the Third Party herein.

11.  The trial was originally scheduled to commence on 24 April 2023 but shortly before the trial, D2 was notified that Pacific Financial was wound up on 1 February 2023. In light of section 186 of the Companies (Wingding- Up and Miscellaneous Provisions) Ordinance, Cap 32, the claim against the Third Party was subject to an automatic stay and could not proceed without leave of court. The trial had to be re-fixed. Later, Pacific Financial (through its provisional liquidators) entered into a consent summons with D2 and on 19 July 2023, D2 was granted leave to proceed with her claims against Pacific Financial. However, the liquidators of Pacific Financial were unable to locate the company directors of Pacific Financial and opted not to participate in the present trial, which then proceeded without Pacific Financial.

12.  Neither the liquidators of Pacific Financial nor anyone on their behalf appeared at the trial. D1 was also absent. At the pre trial review on 17 January 2023, this Court had ordered that all deponents of affirmations and witnesses to attend the trial for cross examination, failing which his/her evidence in his/her affirmations or witness statements was not to be admitted unless otherwise directed by the Court[4]. In light of the absence of the Pacific Financial, D2 sought a direction for all witness statements and affirmations filed on behalf of the Pacific Financial not to be admitted. There was no objection from P, and as a result, all such documents were then removed from the trial bundles at the commencement of the trial, save those pleadings filed by and against Pacific Financial.

13.  Counsel Mr Johnny CM So and Ms Angel HY Wong appeared for P, and Mr Lawrence Cheung appeared for D2.

B.  THE PARTIES’ RESPECTIVE PLEADED CASE

B.1  Summary of P’s pleaded claim against D2

14.  It is P’s pleaded case that D1 applied for and obtained a loan of HKD 1,200,000 from P on 2 September 2013 secured by the 2^nd Legal Charge on the Property. In P’s amended points of claim (“APC”)[5], P sets out the relevant terms of the 2^nd Loan Agreement with certain clauses abandoned in order to comply with the provisions in the MLO and the loan amount was revised to HKD 1,188,000 (“Revised Loan”). It is also P’s pleaded case in the APC that prior to entering into the 2^nd Legal Charge, P had instructed Messrs KB Chau & Co (“KBC”) to conduct due diligence on the Property.

15.  D1 was in default of the payment of monies due to P and D1 failed to pay the Revised Loan and accrued interest. It was after P issued the originating summons herein that D2 applied for leave to join as a party and asserted that she was the beneficial interest of 50% of the Property. P denies such assertion and P’s case is that it was at that point of time that P realised that D2 was the ex-wife of D1.

16.  It is also P’s pleaded case that P only learnt from D2’s affirmations and pleadings filed in these proceedings that she was/is occupying the Property, which according to P, she had /has no right to do so.

17.  P claims against D2 for amongst other things delivery of vacant possession of the Property to P.

B.2  Summary of D2’s pleaded defence and counterclaim against P

18.  In her re-amended points of defence and points of counterclaim (“RAD&C”)[6], D2 has put P to strict proof of the 2^nd Loan Agreement and makes no admission as to the validity and enforceability of the 2^nd Loan Agreement, nor the legal effect of the terms therein.

19.  D2 further avers in her defence to P’s claim amongst other things that:

(1)  The loan application form received by P by email on 28 August 2013 clearly showed that D1 was married at that time and had one daughter V, and P was fully aware of this from the very beginning when processing D1’s loan application[7];

(2)  D2 only found out about the 1^st and 2^nd Legal Charge and many other debts of D1 when D1 issued the Divorce Proceedings. D2’s case is that she and V have the right to reside in the Property and have been residing there as the ultimate beneficial owners of the Property

(3)  The Property was a property sold under HOS subject to the conditions in the Schedule to the Housing Ordinance, Cap 283 (“Cap 283”), and D1 entered into the 1^st Loan Agreement with Pacific Financial on 17 July 2013. It was only a day later, on 18 July 2013, that HKHA issued a letter of confirmation of the removal of alienation restrictions on 18 July 2013 (“Letter of Confirmation”), which was registered unreasonably late at the Land Registry on 23 August 2013.

(4)  As the Letter of Confirmation was issued after the execution of the 1^st Loan Agreement and the 1^st Legal Charge, the 1^st Loan Agreement and the 1^st Legal Charge were illegal, unenforceable and void ab initio under section 17B of Cap 283.

(5)  By exercising due diligence in inspecting the records of the Land Registry, P should have discovered and noticed that the 1^st Loan Agreement and the 1^st Legal Charge were entered on 17 July 2013, prior to the issuance of the Letter of Confirmation, and P should have conducted further investigation with D1.

(6)  As a result of the illegality of the 1^st Loan Agreement and the 1^st Legal Charge and the invalidity of the Letter of Confirmation, the 2^nd Loan Agreement and the 2^nd Legal Charge were tainted with illegality and be treated as void ab initio and unenforceable under section 17B of Cap 283.

(7)  Further, a lump sum of HKD 200,000 was paid by P to a company called Matt’s Standard Company Limited (“Matt’s”) which was acting for or in collusion with P to charge, demand or receive remuneration from D1 in procuring, negotiating or obtaining the loan under the Loan Agreement and/or the 2^nd Legal Charge in contravention of section 27 of the MLO.

20.  D2 counterclaims against P amongst other things that:

(1)  Relying on D1’s promise to D2 and her parents to give D2 a stable family after marriage by transferring the beneficial ownership of his flat at 皇庭彩苑 in Shenzhen to D2 and purchasing a car for her, D2 married D1 and after marriage moved into D1’s flat at 皇庭彩苑 (“Shenzhen Flat”).

(2)  Due to insufficient living space in the Shenzhen Flat in or about early 2006, D1 and D2 and their daughter V moved into a flat at 駿皇名居 which was owned by D1’s mother in Shenzhen.

(3)  The Shenzhen Flat was then rented out and due to tax issue in Shenzhen, D1 and D2 agreed to withhold the transfer of the Shenzhen Flat to D2, but agreed that the monthly rental was to be kept by D2.

(4)  In or about early 2007, D1 and D2 agreed that V should receive her education in Hong Kong and to facilitate the plan, they agreed to purchase a property in Hong Kong with the common intention that the family would move to Hong Kong permanently.

(5)  In order to further substantiate and fulfil D1’s promise to D2 regarding the beneficial ownership of the Shenzhen Flat, D1 and D2 agreed with common intention that the property to be purchased in Hong Kong would be owned by them jointly in equal shares and the beneficial interest in the Shenzhen Flat would be returned by D2 to D1.

(6)  After having searched and inspected various properties in Hong Kong, D1 and D2 agreed to purchase the Property. Due to the fact D2 was not yet at the time a permanent resident in Hong Kong, she was not entitled by law to be named and registered as one of the joint owners of the Property with D1.

(7)  Before completion of the Property, D1 reassured D2 he would transfer half share of the Property to her once she became a permanent resident. To assure their common intention, D2 would continue to keep the monthly rentals of the Shenzhen Flat of RMB 4,000 until the transfer of the half share of the Property to D2 and in about mid October 2007, in reliance on the promise of D1 and their common intention, D2 paid to D1 a lump sum of RMB 100,000 to cover and defray expenses relating to the acquisition of the Property.

(8)  On or about April or May 2008, in order to show his love and affection to their daughter as a gift when she attains the age of 18 and in order to show their further common intention, D1 repaid in full the remaining balance of HSBC Mortgage Loan on 22 May 2008. According to D2’s pleaded case, after the release, all the title deeds of the Property were given to her by D1 for custody.

(9)  D2 obtained her Hong Kong Identity Card on about 9 February 2011, and she and V moved to Hong Kong in or about September 2011 and they have been living in and making the Property their home.

(10)  By reason of the above, D2 avers that it was the common intention of D1 and D2 that D1 would cause to be registered D2 as the joint owner of the Property and it was also the common intention of D1 and D2 that D1 would transfer his half share of the Property to their daughter upon her attaining the age of 18.

21.  It is also D2’s pleaded case that P failed to exercise due diligence before entering into the 2^nd Loan Agreement and the 2^nd Legal Charge.

22.  D2 seeks amongst other things (i) a declaration that she is the beneficial owner of 50% of the Property, and (ii) a declaration that the 2^nd Legal Charge is void ab initio and unenforceable.

B.3  Summary of D2’s claim against Pacific Financial

23.  D2 claims against Pacific Finance that the 1^st Loan Agreement and the 1^st Legal Charge between Pacific Financial and D1 were in breach of the statutory requirements in the Schedule to Cap 283.

24.  Further, Pacific Financial failed to exercise due diligence up to the standard and reasonably expected of a licensed money lender in Hong Kong by failing to inspect the Property and make reasonable inquiries to D1 before it entered into the 1^st Loan Agreement and the 1^st Legal Charge.

25.  D2 seeks amongst other things (i) a declaration that the 1^st Loan Agreement and the 1^st Legal Charge are unlawful/illegal, void ab initio and unenforceable; (ii) a declaration that the Letter of Confirmation be rescinded; and (iii) a declaration that D2 is the beneficial owner of 50% share of the Property.

C.  THE DISPUTED ISSUES BETWEEN P AND D2

26.  There are 9 disputed issues between P and D2 of which Issues (1) to (3) were proposed by D2 but not agreed by P. The 9 issues are:

(1)  Whether, and if so, how had P been colluding with other parties in the process of entering into the 2^nd Legal Charge with D1

(2)  Whether the 2^nd Loan Agreement and the 2^nd Legal Charge are void, illegal and unenforceable by virtue of various provisions in MLO

(3)  Whether the 2^nd Loan Agreement was extortionate contrary to section 25(2) of MLO and should the Court exercise its discretion under section 25(1) of MLO in reopening the transaction

(4)  Whether the alienation restrictions over the Property had been removed by the Letter of Confirmation issued by the Housing Authority prior to the execution of the 1^st Legal Charge and whether the 1^st Loan Agreement was void and unenforceable due to breaches of section 17B(2) and conditions 1 & 4(b) of the Schedule to Cap 283

(5)  Whether the 1^st Loan Agreement, the 1^st Legal Charge, and/or the 2^nd Legal Charge executed by D1 in favour of P are valid and enforceable

(6)  Whether D1 and/or D2 can come to equity in clean hands and accordingly are not debarred from asserting any beneficial ownership under a trust in light of the HOS public policy

(7)  If the answer to Issue (3) above is in the affirmative, whether D1 and/or D2 can discharge the burden in showing that D1 has been holding the Property on trust for D2 and/or D2 has any beneficial interest in the Property

(8)  If the answer to Issue (4) above is in the affirmative, what is the extent of D2’s beneficial interest in the Property

(9)  If the answer to Issue (4) above is in the affirmative, whether P had made proper enquiries in the circumstances as to the existence of D2’s beneficial interest and accordingly, whether it is a mortgagee in good faith for value without any constructive notice at the time when the 2^nd Legal Charge was executed.

D.  THE WITNESSES

27.  P called only one witness, namely its executive director Mr Toby Ng Man Sau (“Mr Ng”) who had made 5 affirmations and one witness statement. He had attended the trial for cross examination.

28.  D2 had submitted two witness statements (including a supplemental witness statement) and made 8 affirmations. She had attended the trial to be cross examined. She called no other witnesses.

29.  A partner of KBC, Mr Ronald Poon (“Mr Poon”), had filed an affirmation to produce copies of documents in a schedule pursuant to an order for non-party discovery made by Master Lai on 15 May 2019[8]. In his affirmation, Mr Poon produced copy of a letter dated 31 May 2019 from KBC to D2’s solicitors enclosing documents in KBC’s possession, custody and power[9] (“KBC Documents”). Mr Poon was eventually not called to give oral evidence as there was no dispute that the KBC Documents were the documents in KBC’s possession, custody and power concerning these proceedings.

E.  PROCEDURAL OBSERVATIONS

30.  Before the Court considers the disputed issues, there are some procedural observations which this Court wishes to make and they are set out hereunder.

31.  First, D2 is counterclaiming in these proceedings for a declaration of beneficial interest in the Property. As D1 is the registered legal owner of the Property, D2 ought to have joined D1 as a defendant in her counterclaim. The Court was told that some time after issuing the Divorce Proceedings, D1 had disappeared and could not be located by D2, but this was not a valid reason for not joining him as a defendant in her counterclaim. Her failure to do so may result in any decision of this Court being not binding on D1.

32.  Second, as set out earlier, D2 has made a claim against Pacific Financial for, amongst other things, a declaration that the Letter of Confirmation be rescinded. The issuer of the Letter of Confirmation was in fact the HKHA. It is not clear how D2 can seek such a declaration from the Court without HKHA having been joined. As it turned out, D2 did not pursue this claim and in any event, Pacific Financial did not turn up at the trial.

33.  Third, D1 issued the Divorce Proceedings against D2 before P’s present Order 88 Action. The Property being the matrimonial home of D1 and D2 is subject to an ancillary relief claim by D2 against D1 under the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”) and D2 had also mentioned her intention to make an application under section 17 of MPPO to set aside dispositions made by D1 (including the 2^nd Loan Agreement and 2^nd Legal Charge) with an intention to defeat her claims for financial provision. Although a spousal claim is different in nature from that of a claim for beneficial interest, in my view, P and D2 could have sought directions from either the Family Court Judge or the High Court Master as to how to deal with D2’s claims over the Property in a more cost and time effective manner, namely whether P should intervene in the Divorce Proceedings and whether P’s claim should be tried as a preliminary issue in the Divorce Proceedings, or, whether the two sets of proceedings should be heard one after another by the same judge and if so, whether in the Family Court/District Court or in the High Court, as it seems that by about 2018, P’s claim had fallen within the jurisdictional limits of the District Court. One advantage of P intervening or joining in the Divorce Proceedings will be that P may be able to avail itself of the alternative dispute resolution procedures in family proceedings. In the present case, the trial only took place some 10 years after commencement of this action while the Divorce Proceedings have been stayed in the meantime and insofar as this Court is aware, there has been no Decree Absolute yet, even though P refers to D2 being D1’s ex-wife. In my view, the delay and cost in having two trials before two different judges defeat the objectives of the Civil Justice Reform.

34.  Turning back to the present proceedings, I will first consider D2’s case as to her alleged beneficial interest in the Property.

F.  ISSUES (7) AND (8) – D2’S ALLEGED BENEFICIAL INTEREST

F.1  Relevant legal principles

35.  There is no dispute over the applicable legal principles. As set out by Madam Recorder Eva Sit SC in Woo Tat Huen v Lee Wai Ping [2021] HKCFI 576, the starting point where there is sole legal ownership is sole beneficial ownership, and the onus is on the person seeking to show that beneficial ownership is different from the legal ownership; in other words, it is for the non-owner to show that he has any interest at all[10].

36.  Madam Recorder Sit SC then went on to cite the relevant legal principles summarised by Coleman J in Lam Ka Kui v Choi Yuen Ling [2020] HKCFI 2647; HCA 537/2017 (unrep., 23 October 2020), §§8-16:-

“(1) Where a common intention constructive trust has arisen, ownership in the property is split into legal ownership and beneficial ownership. The trustee holds the legal title on trust for the beneficiary.

(2) Where a constructive trust is alleged to arise on the basis of the parties’ common intention, it is the intention commonly held by the property owner and the plaintiff regarding their shared beneficial interests in the property that matters. The trust is constituted by the three elements of (i) the common intention, (ii) the plaintiff’s detrimental reliance on their common intention, and (iii) the unconscionability of the property owner departing from it.

(3) The burden of proving each element of common intention, detrimental reliance and unconscionability is on the person seeking to show that the beneficial ownership is different from the legal ownership. The focus is on the intention of the parties at the time of acquisition of the asset. Contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event.

(4) Common intention can be expressed or implied. It can be deduced or inferred objectively from the parties’ conduct. As a matter of common sense, it is easier to infer such an intention prior to the acquisition of property which results in an obvious change in legal ownership (rather than after such an acquisition where there is no change in legal ownership and a change in beneficial ownership is not otherwise apparent).

(5) In Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327, §§2.3-2.4, Cheung JA identified two situations where a common intention constructive trust may arise.

(a) The first is where at any time prior to acquisition, or exceptionally at some later date, there is an agreement, arrangement or understanding reached between the parties on how the property is to be held beneficially. The finding of such an agreement or arrangement can only be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been.

(b) The second situation is where there is no evidence to support a finding of an agreement or arrangement on the beneficial ownership of the property, and the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention on the beneficial ownership of the property and as the conduct relied on to give rise to a constructive trust. In this situation, direct contributions to the purchase price by the party who is not the legal owner, whether initially or by mortgage instalment payments, will readily justify the inference necessary to the creation of a constructive trust.

(6) A resulting trust arises by virtue of the plaintiff’s contribution in money or in some other way towards the property's acquisition. Equity holds the legal owner to be a trustee of that property for the plaintiff in an appropriate share, giving effect to the parties presumed intention. Particularly in a domestic context, but also generally, if it is possible to resolve the matter by reference to common intention, there is no need to resort to resulting trust.

(7) As emphasized in Stack v Dowden §§68-69, an intention to have beneficial interest different from legal interest in property is unlikely, and the task of showing that should not be lightly embarked upon. It was recognized that, in family disputes, strong feelings are aroused when couples split up which can often lead the parties, honestly but mistakenly, to reinterpret the past in self exculpatory or even vengeful terms. If a difference is to be found between the beneficial and legal interest, clear evidence will be required. Unequal contributions to the purchase price of property will not likely be enough to move away from the starting point that equity follows the law.”

37.  In short, D2 bears the burden of proving the three elements: (1) the common intention; (2) her detrimental reliance on the common intention; (3) unconscionability of departing from it.

F.2  D2’s evidence

38.  D2 was born in November 1982 in Henan. According to her, after she graduated from high school, she worked in a restaurant in Huiyang and met a Mr Yeung in 1999. She then moved to Shenzhen, and with Mr Yeung’s support, in 2001 she purchased a flat at 麗港灣 in Shenzhen. During the trial, she confirmed that she herself paid for the down payment for this flat and the balance was by way of a mortgage, and that Mr Yeung had helped her pay for renovation and also Mr Yeung paid for the monthly mortgage repayments. She moved into this flat upon its completion in 2003, and that Mr Yeung would stay with her over weekends as he had to work in Hong Kong during weekdays. She later separated from Mr Yeung in about middle 2004 and started to work as a property agent and paid for the monthly mortgage payments herself.

39.  According to D2, she met D1, a Hong Kong permanent resident, in about October 2004. D1 was then working as a car sales agent. They fell in love and D1 proposed marriage to her around her birthday and winter solstice on 22 December 2004. At the time of the proposal, D1 made a number of promises to her including a promise to transfer to her the Shenzhen Property, which was registered in his sole name, and to give her a car for wedding present (“Promise”). Relying on the Promise, D2 accepted his proposal and she moved out of her flat and moved into the Shenzhen Property to cohabit with D1.

40.  A few days later, in or about late December 2004, D1 went with her to Hunan to meet her parents. They stayed with D2’s family, and that initially when her mother heard that she had accepted D1’s marriage proposal, her mother became emotional, and did not agree to it as it was so sudden. D1 then reiterated the Promise and it was then her mother agreed and let them have the family “household registration record” for D1 and D2 to register their marriage. D1 and D2 married in Hunan on 5 January 2005.

41.  After marriage, D2 soon became pregnant and ceased working. She gave birth to a daughter, namely V, in November 2005. After birth, D2’s mother also moved to the Shenzhen Property to help looking after V. Due to insufficient living space in the Shenzhen Property, in or about early 2006, D1, D2, her mother and V moved into a property owned by D1’s mother at 駿皇名居 in Shenzhen (“D1 Mother’s Flat”). The Shenzhen Property was then rented out. In 2006, pursuant to the Promise, D1 bought a car for D2 which was registered under D2’s name. According to D2, due to tax issues, D1 and D2 agreed to withhold the transfer of the title of the Shenzhen Property to D2 and instead, D1 and D2 agreed that the monthly rental of the Shenzhen Property of about RMB 4,000 at that time was to be kept by her, but which D2 said she had applied towards the family’s household expenses.

42.  In about early 2007, D1 and D2 agreed that V should receive her education in Hong Kong, and they agreed to purchase a 3 bedroom property in Hong Kong with the common intention that their family would move to Hong Kong permanently and to reside in the property to be purchased. As D1 did not have enough funds to purchase a private flat and even though his mother would help, in the end, D1 and D2 decided to apply for a HOS unit in Hong Kong.

43.  As mentioned earlier, it is D2’s pleaded case that to further substantiate and fulfill the Promise, D1 agreed with D2 with common intention that the property to be purchased in Hong Kong would be owned by them jointly in equal shares, in lieu of D2’s beneficial interest in the Shenzhen Property which would be returned by D2 to D1, and that to reflect their common intention, they agreed that the price of the property to be purchased in Hong Kong should be about double that of the then market value of the Shenzhen Property. Subsequently, they agreed to apply for a HOS unit and that D1 had brought her to the HKHA office in Lok Fu to make enquires. As D2 was not yet a permanent resident in Hong Kong at that time, she was told she would not entitled by law to be named and registered as one of the joint owners of the Property.

44.  The application was then made in D1’s sole name and was later approved. The Property later was acquired in the sum of HKD 1,684,600[11]. According to D2, the down payment was about HKD 800,000. The balance was paid by the HSBC Mortgage Loan.

45.  According to D2, before the completion of the Property, D1 reassured D2 that he would transfer half share of the Property to her once she became a permanent resident of Hong Kong. To further assure their common intention, D1 agreed that D2 would continue to keep the monthly rental of the Shenzhen Property until the transfer of the half share of the Property to her and that in about mid October 2007, in reliance on the Promise and their common intention, D2 paid to D1 a lump sum of RMB 100,000 in cash to cover and defray expenses relating to the acquisition of the Property prior to the completion of purchase. She also mentioned that D1’s mother also helped with her savings.

46.  The assignment of the Property to D1’s sole name took place on about 16 November 2007. According to D2, the title deeds of the Property were kept by her in a safe in D1 Mother’s Flat.

47.  D2’s case was then in about April/early May 2008, in order to show his love and affection to V, D1 further agreed to transfer his half share of the Property to V as a gift upon V attaining the age of 18. Further to show their common intention, D1 repaid the remaining balance of the HSBC Mortgage Loan on the Property in May 2008. In July 2008, D1 also purchased a life insurance policy for the benefit of V[12].

48.  As pleaded, D2 obtained her Hong Kong identity card on about 9 February 2011, and in about September 2011, D2 and V moved to Hong Kong and have been living in the Property since. According to D2, the Shenzhen Property was sold in September 2011 by which time, according to her recollection, D1 had already paid off the outstanding mortgage loan on the Shenzhen Property. She later also sold her own flat at 麗港灣 in about May 2012 for RMB 1.2m.

49.  According to D2, in fact by 2011, the relationship between D1 and her had turned for the worse. According to D2, D1 never really resided in the Property with her and V even though D1 had a set of the keys. She had tried to save the marriage after she and V moved to Hong Kong, but thereafter, D1 rarely returned to live in the Property and there was less and less contact between her and D1.

50.  D1 issued the Divorce Proceedings in October 2013. According to D2, it was only when she received D1’s Form E filed in the Divorce Proceedings which was sent to her at the address of the Property on 19 November 2013[13], that she found out that D1 had mortgaged the Property, and further it was only when she saw the letter dated 3 December 2013 sent by P’s then solicitors to D1 at the address of the Property that she learnt that D1 owed P a sum of HKD 1,200,000[14] and it was only when she saw the originating summons issued by P and sent by P’s then solicitors to D1 at the address of the Property on 27 December 2013 that she learnt that P was seeking vacant possession of the Property[15].

51.  It was D2’s evidence that neither Pacific Financial nor P had ever enquired from D2 directly as to the Property, and no one had ever attended the Property to enquire after the ownership and occupation of the Property, and that no one had ever informed her of those loans from Pacific Financial or from P, and that had due diligence been carried out, the money lenders would find out that D2 and V were/are living in the Property and that the Property was/is owned jointly by D2 and V.

52.  It was further D2’s evidence that not long after the Divorce Proceedings were issued by D1, she had difficulty in contacting D1.

F.3  Analysis of the evidence

53.  From her evidence, D2’s case of common intention construction trust appeared to be based on an express agreement between her and D1 and there were 2 stages as pointed out by P[16]:

(1)  At the time of D1’s proposal of marriage to her and the Promise in late December 2004 to transfer to her the Shenzhen Property pursuant to which, D2 agreed to marry him, and later to give up working and to care for their daughter V (“Stage 1”);

(2)  In early 2007, when D1 and D2 planned to move to reside in Hong Kong permanently and agreed to purchase a property in Hong Kong for the family to reside in, and D1 agreed to D2 to have 50% share in the property to be purchased in lieu of the Shenzhen Property (“Stage 2”).

54.  P pointed out there was no mention by D2 of Stage 1 in her 1^st affirmation which was filed to support her application for joinder, or any mentioned of a common intention constructive trust, or the Promise.

55.  There was also no mention about Stage 1, or the Promise in her 2^nd affirmation or the collection of the rental income of the Shenzhen Property. The Promise and D2’s retention of the rental income of the Shenzhen Property were only pleaded and raised for the first time in her points of defence and counterclaim on 8 August 2016.

56.  When D2 was cross examined over her omission of Stage 1 in her 1^st and 2^nd affirmations, her answer was that her solicitors did not ask her, and that there were “many things” happening. Although she did not mention Stage 1 and the Promise in her 2^nd affirmation, she did mention D1 had promised that he would transfer 50% of the Property to her upon her becoming a Hong Kong permanent resident.

57.  Further, there did appear to be “many things” happening at the time as there were both the Divorce Proceedings and these proceedings going on and P was seeking default judgment against D1 in the present proceedings. D2’s summons and 1^st affirmation for joinder were only filed on 20 June 2014 and the 1^st hearing on 24 June 2014 was later adjourned. Thereafter, D1 and D2 were engaged in the Divorce Proceeding. It was after P changed solicitors that a hearing was fixed herein on 10 November 2015. D2’s 2^nd affirmation was filed on 26 October 2015 to elaborate her relationship with D1 and the Property pursuant to Master Lai’s direction. Although D1 did not mention the Promise in her 2^nd affirmation or collection of rental, she did mention D1’s promise to transfer to her 50% of the Property upon her being Hong Kong permanent resident and her payment of RMB 100,000 to D1 for the acquisition of the Property.

58.  When cross examined as to what exactly D1 had said to her about the Promise, D2 had answered that she was not able to remember exactly , but maintained that D1 promised that he would give her everything he had at that time. Whether D1 had specifically promised to give D2 the Shenzhen Property or not, the Shenzhen Property was in fact the only property D1 had at the time and where D2 moved to after agreeing to marry him. By the time of the trial, it was almost 19 years after the time D1 proposed. That D2 could not recall the exact words uttered by D1 at the time when he was proposing would not mean that her evidence was unreliable. D2 had said D1 repeated the Promise in front of her parents, and although D2 did not call her parents to testify on her behalf, I do not find it improbable that D1 did made the Promise as alleged by D2 to her at the time of his proposal of marriage.

59.  In her witness statement, D2 had produced copies of some 39 photographs of her and D1 and their daughter V during their happier days, including one at Ocean Park which was dated 20 March 2010[17]. She had also produced a copy of a handwritten note from D1 to her on 24 January 2005[18] and also memos between her and D1 on 29 April 2006 and 1 May 2006[19]. There had clearly been arguments and ups and downs during their marriage. Although later in 2011, D2 found out that D1 had another girlfriend in Shenzhen, according to D2, they still decided to move the family to Hong Kong and to live in the Property even though D1 rarely returned to the Property. In fact, it was D2’s written evidence that D1 did not move into the Property but he had the keys to the Property and he took away the title deeds from the Property without her knowledge[20]. During the trial, she clarified that after the HSBC Mortgage Loan was paid off in May 2008, the title deeds were initially kept by her in a safe at their matrimonial home in Shenzhen, namely D1 Mother’s Flat, and that later when she moved to Hong Kong, she brought the title deeds with her and they were kept in a safe in the Property to which D1 and D2 both had access, and D1 later took the title deeds from the safe in the Property without her knowledge.

60.  D2 admitted during the trial that she did not know when exactly D1 sold the Shenzhen Property and she learnt of it at about the time she and V moved to Hong Kong. After she and V arrived in Hong Kong, D1 paid her HKD 5,500 per month for their expenses and was paying the utilities directly but he ceased all payments shortly thereafter. She said life was difficult at the time as D1 was also supporting another family in Shenzhen and D2 said she had to borrow from her sister whom she later repaid when she sold her flat at 麗港灣 in about May 2012. It was only after one year she moved here that she obtained a tour guide licence in Hong Kong and that she had a more settled income.

61.  According to D2, prior to moving to Hong Kong permanently she and V had visited Hong Kong and stayed in the Property occasionally. During the trial, D2 confirmed that when she and V moved into the Property, she knew that D1 already had a girlfriend in Shenzhen but he told her that the Property was for D2 and V and that they renovated the Property in September 2011 before moving in. Although D1 was not really living there, she still cherished hope that D1 would change and return one day (浪子回頭). D2 also said D1 had a set of keys to the Property and that when he was not in Shenzhen, he would return to the Property occasionally to stay and to visit V, and sometimes he would stay at his mother’s home in Hong Kong.

62.  According to the divorce petition, D1 himself stated he moved out of the Property in about January 2010. Anyway, as seen below, D1 and D2 had regarded the Property as their “matrimonial home”.

63.  Upon D2 being granted legal aid, her solicitors had written to inform P’s former solicitors on 8 January 2014 that the Property was the “matrimonial home” of D1 and D2 and that D2 had beneficial interest being D1’s spouse and that D2 intended to make an application under section 17 of MPPO to set aside disposition made by D1[21] and to make an application for joinder in the present proceedings. D1 himself clearly also regarded the Property as the “matrimonial home” as he had referred the Property as the “matrimonial home” in his divorce petition[22]. This can also be seen in the order made by Deputy Judge Grace Chan, as she then was, at the First Appointment Hearing in the Divorce Proceedings on 21 March 2014, when D1 was represented by counsel and he had undertaken at that hearing not to cause further encumbrances in respect of the “matrimonial home”[23].

64.  According to D2, after D1 issued the Divorce Proceedings, she started to receive a lot of letters from banks and finance companies at the Property, and from D1’s Form E in the Divorce Proceedings, she discovered that D1 had used his credit card to buy chips for gambling at Macau casinos and owed huge debts. There were 3 charging orders against the Property by August 2015[24].

65.  Mr So had pointed out that D2’s case was problematic. Although D2’s case was that instead of transferring the Shenzhen Property to her pursuant to the Promise, D1 allowed her to receive the monthly rent therefrom and that later her interest in the Shenzhen Property was subsumed into the half share in the Property, yet D2’s own evidence was she continued to receive the monthly rent after the purchase of the Property.

66.  However, at that time, the transfer of the 50% of the legal title of the Property to D2 had not yet been effected by D1. Although D2’s evidence was convoluted and confusing at times, her evidence was clearly that it was the common intention of D1 and her that she would have 50% beneficial interest in the HOS unit and D2’s interest in the Shenzhen Property under the Promise would be substituted by 50% of the beneficial interest in the HOS property to be acquired. D2 reiterated during the trial D1 had gone with her to the HKHA office at Lok Fu to make enquiries about application for a HOS unit and that a staff had explained to her she would not be qualified to apply for a HOS unit as she was not yet a Hong Kong permanent resident. It was also D2’s oral evidence that D1 had discussed with her which location to select for the application for a HOS unit, namely that Lai Chi Kok would be closer to his mother’s home in Mei Foo Sun Chuen and Shatin would more convenient for shopping, and later D1 selected Shatin.

67.  D2 was not a resident in Hong Kong at the time and it would not be surprised for D1 to select the locations and there was no sufficient evidence to contradict D2’s evidence that they had discussed before D1 later selected Shatin. Although she was not able to state the exact price of the Property when asked, she did mention the down payment was about HKD 800,000. When asked under cross examination whether she had ever asked D1 to transfer the 50% share in the Property to her in 2011 after she moved to Hong Kong, D2 said she did ask D1 after she moved to Hong Kong but D1 responded at that time that he had no sufficient money to pay the premium to HKHA.

68.  D2 confirmed during the trial that the relationship between she and D1 was very good at the time when the Property was bought in November 2007. There was nothing to indicate that the relationship between D1 and D2 was not a close one in 2007 at the time of acquisition of the Property and as seen in those photographs produced by her, the relationship between D1 and D2 appeared to be a happy and amicable one even in March 2010 although D1 mentioned he had moved out of the Property in January 2010.

69.  D2 had produced a copy of her bank transaction record of her Bank of China account between 24 October 2003 to 31 December 2008[25] to support her evidence that she had paid RMB 100,000 in cash to D1 for the acquisition of the Property in reliance of their common intention.

70.  According to D2, she withdrew about RMB 110,000 in cash on 11 October 2007, and this was because the night before, she was discussing with D1 and she agreed to contribute RMB 100,000 towards the purchase of the Property, and on 11 October 2007 she told the bank teller that she wanted to withdraw the sum and that she did withdraw such an amount and gave it in cash to D1 who took it to Hong Kong.

71.  There was no single withdrawal of any equivalent sum of RMB 100,000 on 11 October 2007 but instead there were a total of 8 “minus” (debit) transactions on that day, of various amounts, and one as little as RMB 21.08 and one “credit” transaction of RMB 41,908. Under cross examination, D2 explained that she told the bank teller that she needed to withdraw RMB 100,000 and that the bank teller helped her to arrange several withdrawals totalling RMB117,075.30 at the best rate. The bank statement was headed “中國銀行新綫存款歷史交易明細清單” and did show 9 transactions took place on 11 October 2007 at the same bank counter number “26”. D2 maintained during the trial that those transactions would support her payment of RMB 100,000 to D1. It was in fact not quite clear what those transactions referred to, even though the statement did appear to show she had savings of HKD 50,000 and RMB 216,997.12 prior to 31 March 2007. Further on 31 March 2007, there was a debt of a RMB 43,433.25 and a credit of RMB 23,433.25 prior to those transactions on 11 October 2007. Anyway, if one adds up all those “minus” transactions on 11 October 2007 which appeared to be debits/outward transfers, the total would be RMB 117,075.30 although there was also a sum RMB 41,908.00 credited back at the end of the same day. The statement was printed out by the bank on 16 October 2015, which would appear to support that D2 did approach the bank after the commencement of these proceedings to obtain that statement. The statement did show there were many transactions on 11 October 2007 at the same counter and the transactions were about 1/3 of the total transactions during the 6 year period. Although there was later a credit, it did appear that there had been debits of some RMB 117,000 on 11 October 2007.

72.  Lam VP, as he then was, had held in Primecredit Ltd v Yeung Chun Pang Barry & Anor [2017] 4 HKC 599, CACV 246/2016, amongst others, as follows:

“1.6 Since Stack v Dowden [2007] 2 AC 432 and Jones v Kernott [2012] 1 AC 776, as far as Hong Kong is concerned, the modern approach on constructive trust is to assess the common intention of the parties by a holistic approach having regard to the context, see Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985. In a domestic context, particularly in relation to a matrimonial home, the court is not constrained in that exercise by pure direct monetary contributions to the purchase price, see the judgment of Baroness Hale at [69] in Stack. In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family was not that common, the court has to pay more regard to circumstantial matters.”

73.  Even though D2 called no other witnesses and had produced limited supporting documentary evidence, it did not seem probable that she could make up the entire story. At the time of the marriage, D2 was only about 22 years old. It would not have occurred to her that she should obtain D1’s confirmation of the Promise in writing, or to keep records of D1’s purchase of the car, or to keep copies of rental receipts. As said, when the trial took place in 2023, it was some 18 years from the time of D1’s proposal and their marriage. Although her evidence was convoluted and confusing at times, and there were inaccuracies and/or omissions, such would not in my view affect the overall veracity and probability of her evidence. As said, the relationship between D1 and D2 was still very good at the time of the acquisition of the Property in 2007. I accept her evidence that she and D1 decided and agreed that V was to receive her education in Hong Kong and it was their agreement and common intention at that time to purchase a property to be their matrimonial home in Hong Kong and that they would have equal interest in the Property, and in reliance of their common intention, she had withdrawn her savings and paid D1 RMB 100,000 in cash relating to the purchase of the Property. Since September 2011, D2 has been residing in the Property with V and after D1 ceased paying maintenance and utilities, D2 had to rely on loans and savings initially to support herself and V, and later she started working as a tour guide to support herself and V and to pay for household expenses[26].

74.  Having considered all the evidence, D2 has satisfied this Court that there was a common intention between her and D1 that she was to have 50% beneficial interest in the Property and in reliance thereof she had contributed an amount of RMB 100,000 in cash to D1 and she has suffered detriment relying on the common intention, and that it is unconscionable for D1 to depart from such common intention.

75.  Although D2 had also said D1had promised to give his 50% in the Property to V upon V reaching age of majority, this was not really pursued at trial. In any event, I find no sufficient evidence to support this part of D2’s evidence.

G.  ISSUE (6) – WHETHER D2 CAN COME INTO EQUITY IN CLEAN HANDS

76.  P submits that D2 cannot seek relief over her beneficial interest, even if proved, because of the breach of public policy and points out that D2 never addressed the fact that she knew she was not qualified to be an owner of the Property by reason of not being a Hong Kong permanent resident at the time of the acquisition of the Property but then her case was she agreed with D1 that she would become such an owner through the backdoor when D1 registered himself as the sole beneficial owner.

77.  However, in my view, this is not a valid argument. The fact that D2 was not able to legally apply for a HOS property jointly with D1 at the time of acquisition due to her non resident status would not in my view mean that there could not have been an agreement and common intention between D1 and her for D1 to hold 50% of the beneficial interest in the Property for her.

H.  ISSUE (9) – WHETHER P HAD MADE PROPER ENQUIRIES AS TO THE EXISTENCE OF D2’S BENEFICIAL INTEREST AND WHETHER P IS A MORTGAGEE IN GOOD FAITH FOR VALUE WITHOUT ANY CONSTRUCTIVE NOTICE

78.  In paragraph 13 of Mr Ng’s 3^rd affirmation, he had stated that he was advised by Mr Law of KBC on 2 September 2013 that D1 had already signed a declaration that he together with his wife and daughter were the only occupiers of the Property but none of them had any rights or interests over the Property[27]. On the unsigned mortgage loan application form submitted to P by D1[28] (“Loan Application Form”), D1 had clearly ticked the box to indicate he was married, but yet he left blank his spouse’s name. When Mr Ng was asked during the trial whether P would ask for such information, he answered normally P would ask but the customer might not provide. Mr Ng was then asked whether P would be suspicious if the customer refused to provide such information, Mr Ng’s answer was “no” as they would only look at the customer’s ability to repay and the valuation of the property. However, later on, when asked whether P enquired into why D1 needed a second loan within so short a period of time after the first loan, Mr Ng answered that P did ask D1 who said he had used the money obtained from the first loan for business purposes and that shortly he would get back his funds to repay the loan. When this Court asked Mr Ng whether P had sought supporting documents as to what D1 said, Mr Ng then answered no. When this Court queried why P did not ask as he had said the borrower’s ability to repay was an important factor, Mr Ng then answered that P mainly looked at the market value of the Property. When it was put to him that P knew that D1 was only working as an employee, Mr Ng said P would not consider that and P would not consider D1’s income. Mr Ng also said it was all dealt with by Candy.

79.  Anyway, the explanation Mr Ng gave for not asking D1 for his spouse’s name was not convincing. It was further pointed out to Mr Ng that Clause 7 of the 2^nd Loan Agreement states that the Property was subject to “Tenancy Agreement” and “to be occupied by the tenant for non-domestic use”[29] Mr Ng said that was a mistake but he never mentioned such mistake in his 1^st and 2^nd affirmation. Mr Ng was also referred to the Occupation Declaration (as defined below) signed by D1[30], who had ticked the box against item (b), which states as follows:

“The Property is now occupied by me/us and certain adult occupiers and the said occupiers have each signed the form annexed confirming that he/she has no right or interest whatsoever in the Property or alternatively, if he/she has or claims a right or interest in the Property, hereby releases and undertakes to release the Property from all rights and interest as the occupier may have over it as from the date hereof.”

80.  The fact was that D1 did not tick the box against item (a) which was that the Property was occupied by D1 only with no adult occupiers apart from the domestic servants (if any). The fact that D1 had indicated that he was married should also have put P on guard. As D1 had ticked the box against item (b), there should be forms signed by occupiers annexed. When asked, Mr Ng at first said that there were no annexed forms signed by any other occupier and later said he did not know whether there were as it was KBC who prepared the Occupation Declaration.

81.  However, the Occupation Declaration was provided to P as well as KBC on 30 August 2013. Although P maintained their position that they had properly instructed their solicitors KBC to conduct due diligence of the Property, there was no sufficient evidence that KBC was ever instructed by P to ask D1 for the forms signed by occupiers. Further, Mr Ng confirmed he himself never instructed KBC to inspect the Property. The Instruction Letter from P to KBC (defined later) showed KBC was only instructed to prepare a mortgage/loan agreement[31]. What was clear was that D1 had told KBC and P that he together with his wife and daughter were the occupiers of the Property.

82.  In my view, the Occupation Declaration coupled with the Loan Application Form and what P was told by D1/and KBC should have put P on notice that as D1 was married and his wife[32] and daughter or others were living in the Property. The fact that the annexed forms referred to in the Occupation Declaration were neither signed nor attached should also have put P on notice that D1s’ spouse could have beneficial interest in the Property contrary to what was stated by D1. Yet there were no evidence of any proper enquires made by P. I find that P had had constructive notice of D2’s and V’s occupation of the Property and possible beneficial interest at the time when the 2^nd Legal Charge was entered into. P had clearly failed to make proper enquires of the Property and I find that P is not a mortgagee in good faith for value without any constructive notice at the time when the 2^nd Legal Charge was executed.

I.  ISSUES (1) – (3) – ALLEGED IILLEGALITY AND UNENFORCEABILITY

I.1  Lack of locus standi and/or estoppel

83.  It was submitted by Mr So on behalf of P that D2 had no locus standi and/or D2 was estopped to raise issue (1) and/or Issue (2) and/or Issue (3). Issue (1) is in relation to alleged collusion between P, and/or other parties in the process of the 2^nd Legal Charge with D1. Issue (2) is in relation to the illegality and unenforceability of the 2^nd Loan Agreement and the 2^nd Legal Charge under the MLO. Issue (3) is whether the Court should exercise its discretion in reopening the transaction.

84.  D2 was represented by her solicitor at the hearing on 10 November 2015 when the Monetary Order was granted by Master Lai against D1. It was upon reading Mr Ng’s 1^st and 2^nd (Supplemental) Affirmations together with D2’s 2^nd affirmation that Master Lai granted the Monetary Order against D1.In his 1^st affirmation, Mr Ng was claiming the outstanding principal of HKD 1,200,000 plus interest of HKD 281,503.99 up to and included 9 May 2014 and from 9 May 2014 onwards until judgment, at 4% per month with a daily rate of HKD 1,600 subject to fluctuation and thereafter at judgment rate until full payment. In his 2^nd affirmation, Mr Ng attached a repayment statement for the Revised Loan of HKD 1,188,000 being the amount alleged to be actually lent to D1 with interest at 22% per annum. What P was claiming was a total of HKD 1,664,493.48 being:

(1)	Outstanding principal
	as at 23 December 2013	HKD 1,188,000
(2)	Interest at rate of 22%
	From 2 September 2013 to 28 July 2015	HKD 476,493.48

85.  P also claimed HKD 716.05 interest per day from 29 July 2015 until payment.

86.  When the hearing on 10 November 2015 took place, P’s originating summons had not yet been ordered to continue as if by writ, and P’s pleadings and D2’s pleadings had not yet been filed, nor had Pacific Financial been joined.

87.  D2 had only filed two affirmations, her 1^st on 19 June 2014 to support her application for joinder, and as mentioned, her 2^nd affirmation was filed on 23 October 2015 pursuant to an order of Master Lai of 18 August 2015, to set out the relationship between her, D1 and the matrimonial home, ie the Property.

88.  It was not clear what position D2 took at the hearing on 10 November 2015. According to P, there was no objection from D2 at the time to the Monetary Order being made against D1. As P’s claim for vacant possession was adjourned, it would seen that there had been objection at least to this part of P’s claim by D2. The information D2 had at the time in relation to the 2^nd Loan Agreement and the 2^nd Legal Charge was only from what was disclosed by D1 during the Divorce Proceedings, what could be gleaned from public documents registered at the Land Registry and what was disclosed by Mr Ng in his 1^st and 2^nd affirmations.

89.  D2 filed her 3^rd affirmation in April 2017 to support her application for leave to issue and serve a third party notice on Pacific Financial. Thereafter, she issued applications against P and Pacific Financial and also against KBC respectively for inspection and also specific discovery of documents in relation to D1’s applications for the loans and the legal charges against the Property. D2 also served interrogatories on P and/or Pacific Financial and/or KBC. It seemed only thereafter that she obtained further information and documents from P and/or Pacific Financial and/or KBC.

90.  The Monetary Order was only a default judgment against D1 and made by Master Lai based on the then affirmations before him. It was only after the Monetary Order that D2 was able to obtain further information and documents from P and/or Pacific Financial and/or KBC. P is now claiming vacant possession of the Property against D2 pursuant to the 2^nd Loan Agreement and the 2^nd Legal Charge. In my view, the Monetary Order does not bind D2 and she was not estopped in raising Issues (1) to (3) at the trial. As for whether D2 has locus standi to raise Issues (1) to (3), she was granted leave on 24 June 2014 by Master K Lo[33] to join as a party in these proceedings by reason of those matters alleged by her in her 1^st affirmation, namely she was/is D1’s spouse and the Property was accepted to be the matrimonial home and that her ancillary relief claims against D1 would include those of her beneficial interests in and/or transfer of the Property. Although at the trial, the Court had expressed that whether D2 had locus would depend on whether she could prove equitable interest in the Property, on reflection, as she was and appears to be still D1’s spouse and the Property was the matrimonial home and continued to be the home of her and V, and against which she still has an outstanding claim including for a transfer of property order and/or for a s.17 setting aside order, I am of the view that she had/has locus and is not estopped from raising Issues (1) to (3).

I.2  Lack of pleadings

91.  In respect of Issue (2), P complained that sections 22(1)(c) and 24 (1) &(2) of the MLO had never been pleaded by D2 in her RAD&C. P also complained that for Issue (3), section 25(2) of the MLO was again never pleaded.

92.  In the RAD&C, D2 had put P to strict proof of the validity and enforceability of the 2^nd Loan Agreement and the legal effects of the terms herein and what was pleaded by P in the APC, and also D2 had pleaded the illegality and unenforceability of the 1^st Loan Agreement and the 1^st Legal Charge under section 17B of Cap 283 and that by reason thereof, the 2^nd Loan Agreement and 2^nd Legal Charge were also tainted with illegality. D2 had also pleaded the doctrine of ex turpi causa non oritur actio. In relation to the alleged collusion of paying the sum of HKS 200,000 to Matt’s, D2 had specifically pleaded that P was in contravention of section 27 of MLO. As pointed out by D2, P did not put forward any positive case to refute or deal with the illegality point in P’s amended points of reply.

93.  In my view, although there was no specific pleading of sections 22(1)(c) and 24(1)&(2) of the MLO, there had been sufficient facts pleaded for the Court to determine Issues (2) and (3) and P was not taken by surprise. Having said this, I am not prepared to grant any relief not prayed for in the pleadings by D2.

I.3  Issue (1) – Collusion

I.3.1.  D2’s pleaded case on Issue (1)

94.  Issue (1) is framed as follows:

“Whether and if so how had P been colluding with other parties in the process of entering the 2^nd Legal Charge with D1?”

(emphasis added)

95.  What was pleaded by D2 in paragraph 19 of the RAD&C[34] was essentially that:

(1)  P paid a lump sum of HKD 200,000 to Matt’s;

(2)  Matt’s was acting for or in collusion with P to charge , demand or receive any remuneration or reward from D1 for or in connection with or preliminary to procuring, negotiating or obtaining the loan amount under the 2^nd Loan Agreement and/or the 2^nd Legal Charge, in contravention of section 27 of MLO;

(3)  The said HKD 200,000 shall be recoverable by D1 from Matt’s and/or P and/or set off against the loan actually lent to D1 by P.

96.  The only person alleged to be acting for or in collusion with P was Matt’s. D2 reserved her right to plead further on this matter following discovery, but there had been no further pleading by D2 thereafter. The contravention alleged was of section 27 (3) of MLO and whether the said HKD 200,000 shall be recoverable from Matt’s and/or P and/or set off against the loan under section 27(4), even though those subsections were not specifically pleaded.

I.3.2.  Analysis of the evidence

97.  It was not disputed that Matt’s received a “service fee” of HKD 200,000 which came out of the loan amount of HKD 1,200,000 from P to D1 under the 2^nd Loan Agreement. The question was whether Matt’s was acting for or in collusion with P to charge and to receive the amount.

98.  It was also clear from the amended points of defence filed by the Third Party Pacific Financial that a Matt Tam Tsz Hin (“Matt Tam”) was the intermediary acting in the loan transaction under the 1^st Loan Agreement between Pacific Financial and D1 and Matt Tam received a sum of HKD 150,000, namely 5% of the loan amount of HKD 3,000,000, which was paid out of the said loan amount[35].

99.  According to D2, Matt Tam is one of the founders of Matt’s which was incorporated on 23 February 2012. What was clear was that Matt Tam and/or Matt’s was involved as intermediary in D1’s earlier application for a loan from Pacific Financial.

100.  As said, through her application for non-party disclosure, D2 obtained the KBC Documents[36], which consisted of:

(1)  A copy of a covering letter dated 31 May 2019 from KBC to D2’s solicitors

(2)  A “Documents Checklist” from P to KBC dated 30 August 2013 with P’s reference “HSF/2013/0025-001” and a chopped date “2 Sep 2013 13:08” at left top corner (“P’s Documents Checklist”)[37] consisting of 7 items:

(a)  “Instruction to Prepare a Mortgage/Loan Agreement” dated 30 August 2013 (“Instruction Letter”)[38]

(b)  An unsigned Loan Application Form

(c)  A copy of the 2^nd Loan Agreement signed by P, but unsigned by D1

(d)  A “Summary of Provisions of the Money Lenders Ordinance to be included in or attached to a Note or Memorandum of a Loan Agreement”

(e)  A “Notice in relation to the usual provisions and policy of the Personal Data (Privacy) Ordinance” to customers (in Chinese)

(f)  An undated and unsigned letter with P’s reference “HSF/2013/0025-001”, indicating space where the borrower D1 was to sign with his name and HKID card number and with D1 authorising issue of cheques of loan amount advanced to him under the Loan Agreement no “HSF/2013/0025/001” in the manner stated therein, namely HKD 12,000 to P for “Up Front Fee” and “Balance of loan” to D1 left blanked with and handwritten words “60000/Agent” and “Total 1,200,000” (“Payment Authorisation Letter”)[39]

(g)  An unsigned receipt with P’s letterhead dated 30 August 2013 of documents, with space for the borrower D1 to sign

(3)  A “Bankruptcy and Approved Individual Voluntary Arrangement Search Report” of D1 conducted by KBC on 2 September 2013 at the Official Receiver’s Office

(4)  The 2^nd Legal Charge and Memorial for registration at the Land Registry

(5)  A copy of the search record conducted on 02/09/2013 15:12 at the Land Registry by KBC[40]

(6)  A bill issued by KBC to D1 on 2 September 2013 for HKD 6,985 (“KBC Bill”)[41]

(7)  A declaration dated 2 September 2013 signed by the borrower D1 to KBC declaring that the borrower had through the intermediary Matt’s referred the Property to P for a mortgage loan and that the agreement between D1 and the intermediary had nothing to do with KBC and instructing KBC to pay the agreed fee to Matt’s from the loan amount (“02.09.13 Declaration”)[42]

(8)  An undated cancelled agreement on Matt’s letterhead, signed by D1 indicating his agreement to pay 5% of the loan amount to Matt’s as service fees; (“5% Agreement”)[43]

(9)  An undated agreement on Matt’s letterhead, signed by D1 with the words “5% of the loan amount” deleted and substituted with “ HKD 200,000” (“HKD 200,000 Agreement”)[44]

(10)  3 cheques issued by KBC all dated 2 September 2013, one to D1 in the sum of HKD 981,015 and one to Matt’s in the sum of HKD 200,000, respectively with a receipt signed by the borrower[45], and one cheque to P in the sum of HKD 12,000 with a credit advice of the sum being deposited into P’s bank account with Public Bank[46];

(11)  A declaration dated 30 August 2013 signed by D1 as mortgagor witnessed by a clerk to KBC whose signature was verified by Mr Ronald Poon of KBC (“Occupation Declaration”)[47];

(12)  An acknowledgment dated 2 September 2013 signed by D1 to KBC confirming that D1 acknowledged that KBC were solicitors acting for the lender P and that D1 was advised to seek independent legal advice on the transaction as well as the 2^nd Legal Charge with D1 confirming that he did not see the need for independent legal advice[48] (“Acknowledgment of Legal Advice”)

(13)  A declaration dated 2 September 2013 signed by D1 to P and to KBC declaring and warranting (i) no other charge against the Property save the 1^st Legal Charge to Pacific Financial; (ii) no guarantees entered into by D1; (iii) no sale or transfer of ownership in the Property; (iv) all down payment, costs, stamp duties and agency fees for purchase of Property paid by D1 and D1 not holding the Property trustee (v) D1 was also solute owner[49] (“Ownership Declaration”);

(14)  A letter from KBC to P dated 2 September 2013 advising P that good title to the Property could not be proved[50] (“Report letter”)

(15)  A letter from KBC to P dated 6 September 2013 informing P that the 2^nd Legal Charge had been registered at the Land Registry

(16)  A letter dated 20 November 2013 from KBC to P sending to P the original 2^nd Legal Charge for safe custody

(17)  2 “irrevocable instructions” dated 2 September 2013 signed by D1 to Pacific Financial authorising KBC to enquire the outstanding amount payable on redemption of the Property and to direct and authorise KBC to deal with the Property and to prepare a discharge/release of the Property (“Irrevocable Instructions”)

101.  During the trial, Mr Ng explained that sometimes in their business, there would be an intermediary who would introduce a borrower to the lender, and sometimes, the borrower would contact the lender direct. Prior to 1 December 2016, there was no legal requirement for the intermediary to be registered with the lender finance company.

102.  Mr Ng’s evidence in his 3^rd affirmation was that he received an email from his acquaintance on 28 August 2013 that D1 wished to apply for a mortgage loan of HKD 1,200,000, but he could not retrieve the email as it had been deleted and that so far as he remembered, the said email contained all the personal information and supporting documents of D1[51]. It also conveyed that there existed the 1^st Legal Charge and that D1 “desired to capitalise on the rising property market in Hong Kong by exploiting the Property to obtain further financing, with a view to strengthening his liquidity for investments and other undertakings”. He then instructed P’s marketing manager Candy Lai (“Candy”) to commence the internal procedures in connection with the mortgage loan application.

103.  During the trial, Mr Ng said Stephen Li (“Mr Li”) of Sky Glory Consultants Limited (“Sky Glory”) was his acquaintance who sent him the deleted email and referred D1 to P. When asked whether Mr Li had explained why D1 wanted a second loan within such a short time, Mr Ng had at first said no but when referred to his above evidence in his 3^rd affirmation, Mr Ng then claimed Mr Li had written in his email as to why D1 wanted a 2^nd loan.

104.  I have to say I do not find it credible that Mr Ng was able to remember the contents of the email which was deleted by the time of his 3^rd affirmation. Anyway, it was Mr Ng’s evidence in his 3^rd affirmation that at the material time, P did not have any agreement with Matt’s whether relating to referral or otherwise, and at least up to 2 September 2013 when the loan was advanced to D1, his understanding was the company or intermediary that referred D1 to P was Sky Glory and that Sky Glory was to be paid by P for their referral fee after execution of the 2^nd Legal Charge and drawdown of the loan and that the payment was from P’s own money and not from the loan amount.

105.  Mr Ng said during the trial that Sky Glory was not related to P and was on P’s list of registered intermediaries at the time and that Matt’s was not. Mr Ng however admitted that Matt’s had since 1 December 2016 been on P’s registered list of intermediaries. According to Mr Ng, before that date, there was no business between P and Matt’s. When asked why suddenly Matt’s was registered on P’s list on 1 December 2016, Mr Ng claimed that they were introduced by some one and that he could not recall who.

106.  Mr Ng maintained under cross examination that the intermediary who introduced D1 to P for his mortgage loan application was Sky Glory and the amount of commission to Sky Glory was HKD 12,000 which was paid by P direct.

107.  During cross examination , when shown a copy of the HKD 200,000 Agreement, Mr Ng claimed he had never seen the agreement prior to that day of the trial and claimed that he did not know that Matt’s was an intermediary nor did he know that a sum of HKD 200,000 was paid to Matt’s. When shown a copy of the Payment Authorisation Letter, again, Mr Ng’s answer was he had not seen that document before that day of the trial, and that it should be a document prepared by KBC.

108.  It is simply not probable that Mr Ng had not seen the Payment Authorisation Letter before that day of the trial, as the Payment Authorisation Letter was one of the documents contained in the 16 page Documents Checklist transmitted by fax by P to KBC on 2 September 2013.

109.  During cross examination, Mr Ng was also shown a copy of the 02.09.13 Declaration signed by D1 to KBC, which Mr Ng confirmed that he had read when disclosed by KBC. When Mr Ng was asked, why it was stated therein that the mortgage loan from P was through referral by Matt’s as an intermediary, Mr Ng maintained that P did not appoint Matt’s and that P had no contact with Matt’s over the transaction and suggested that Mr Cheung should ask KBC instead.

110.  Mr Ng had produced an invoice from Sky Glory to P for “Referral fee of Sept 2013”[52] (“Invoice”), a copy of P’s internal “Referral List Report” purportedly showing payments to intermediaries[53] (“Referral List Report”), and a copy of the transaction history on 22 November 2013 of P’s current account at Hang Seng Bank[54]. The Invoice was undated and the amount was redacted and the payment date was stated to be “31/10/2013. On the face of the Referral List Report, the “Referral Agent Name” was that of Sky Glory, the “Borrower name” was stated to be that of D1, the “Loan amount” was stated to be “1,200,000”, the “Drawdown Date” was stated to be “02/09/2013”, the “Set Up Fee %” was stated to be 1 %, and the “Set Up Fee Collected” was stated to be “12,000”. However, the “Rebate” was redacted and “Amt to agent” was stated to be “24,000” and the “Net Fee” was stated to be “(12,000)”.

111.  As for the P’s Hang Seng Bank transaction history, which was for one day, ie 22 November 2013, the words “Agency fee” were written against two cheques of the date “07-11-2013 and one of them with written words “Sky Glory”. The amount of the cheque(s) was redacted. Apart from the hand written words, there was no indication that the cheques were paid to Sky Glory.

112.  Insofar as the Invoice was concerned, it was undated and the content only showed “Referral fee of Sept 2013”, and the amount was blocked out but the payment date was stated to be 31 October 2013. As said earlier, the handwritten words on the Hang Seng Bank statement seemed to indicate that the cheques were only cleared on 7 November 2013. When asked why Sky Glory was paid so late, Mr Ng replied that the agreement between P and Sky Glory was that it was when P received the 1^st month’s interest payment from the borrower, then they would pay Sky Glory. This did not make sense, since if the borrower failed to pay any interest, the intermediary would not be paid at all. When this Court asked the percentage they paid Sky Glory, Mr Ng had replied that it should be 1%.

113.  As Mr Ng’s evidence was that the email from Mr Li to him had been deleted, there was no documentary evidence to support that it was Mr Li /Sky Glory who had referred D1 to P. Without the email and/or any written agreement, there was no evidence to support Mr Ng’s evidence what P’s agreement with Sky Glory was. There was nothing in the Invoice to indicate that the referral had anything to do with D1 or the Property.

114.  As said, what was reflected in the Referral List Report was that the total amount payable to Sky Glory should be HKD 24,000. Under cross examination, Mr Ng then tried to explain that HKD 12,000 was paid by P to Sky Glory and another HKD 12,000 was paid by D1 to Sky Glory, and later when he found out that the deduction of HKD 12,000 as “Set Up Fee” from the loan amount to D1 was illegal, P then abandoned the claim for this amount, and the loan principal was adjusted to HKD 1,188,000 in his 2^nd affirmation. However, the deduction of HKD 12,000 from the loan amount stated in the Payment Authorisation Letter was to be paid to P and not Sky Glory. The Referral List Report showed only one payment of HKD 12,000 was collected. The amount on the Invoice was redacted. If P had paid Sky Glory direct, there was no reason to block out the amount.

115.  Anyway, there was nothing on the face of the Referral List Report to show that the percentage of the “commission” or “agency fees” or “service fees” to be paid or payable to the agent, or that the “Amt to Agent” meant the “commission” / “agency fees” / “service fees”. Further, the amount of HKD 24,000 was 2 % of the loan amount and not 1 % as stated by Mr Ng.

116.  As mentioned, the “Up Front Fee” of HKD 12,000 in the Payment Authorisation Letter was payable by D1 to P, and not to any agent/intermediary, and the handwritten figure/words of “60,000/agent” would appear to indicate that another amount of HKD 60,000 was to be paid to the agent.

117.  The Referral List Record was only P’s internal document. All the other documentary evidence from KBC showed only Matt’s involvement, and there appeared to have been revisions to the service fees or commission payable to Matt’s, from the handwritten figure of 60,000 on the Payment Authorisation Letter (which in fact coincided with 5% of the loan amount stated on the cancelled 5% Agreement), to the agreed amount of HKD 200,000 on the HKD 200,000 Agreement, which was some 16% of the loan amount.

118.  In the Acknowledgment of Legal Advice, KBC had made it clear to D1 that they were only acting for P, and not D1, in the transaction of the 2^nd Loan Agreement and in preparing the 2^nd Legal Charge and D1 was advised to seek his own independent legal advice. There was no mention by KBC that they were also acting for Matt’s or any one else in the transaction. The KBC Bill indicated their work was only “preparation of loan agreement” and was dated 2 September 2013, the same day KBC received the documents in P’s Document Checklist from P.

119.  KBC did not appear to have raised any objection to D2’s application for non-party disclosure on the ground that some of the information/documents sought by D2, in particular items (7)-(10) involving Matt’s had belonged to another client and not to P, or on the ground of privilege between KBC and another client[55]. I do not find it probable that KBC was acting for any other person or had received instructions from any other person to prepare items (7), (8), (9) and (10) of the KBC Documents, or that those documents did not belong to P.

120.  It was also rather odd that upon KBC disclosing the KBC Documents, P did not instruct their former or present solicitors to immediately clarify with KBC the existence of those documents involving Matt’s. When asked, Mr Ng’s answer was only that he and his legal term thought the scope of the action was confined to the legality of 2^nd Loan Agreement and the 2^nd Legal Charge. His answer did not make any sense. If P genuinely did not know of the involvement of Matt’s in the transaction, one would think they would be surprised by the documents disclosed by KBC and would have immediately clarified with KBC their existence. P could also have called Mr Poon of KBC and also Mr Li of Sky Glory to give evidence on P’s behalf.

121.  Mr Ng also claimed that D1 never attended P’s office, and that it was Candy who handled the transaction concerning the 2^nd Loan Agreement and the 2^nd Legal Charge. Also, Mr Ng was not present when D1 signed the 2^nd Loan Agreement and the 2^nd Legal Charge at KBC’s office, and it was Candy who was present. Mr Ng had confirmed that Candy was still working for P at the time of trial, and yet Candy was never called by P to be a witness in these proceedings.

122.  Having considered the above and Mr Ng’s evidence, I have to say I find Mr Ng evasive in his evidence in relation to who the intermediary was who was involved in the referral of D1’s loan application to P and/or the amount of commission/agency fees/service fees paid to the intermediary. I do not find Mr Ng a reliable or credible witness.

123.  It was held by DDJ Phoebe Man in E-way (Hong Kong) Property Credit Ltd v Fung Wing Tim [2019] 5 HKC held that [56]:

“(1) The words ‘in collusion with’ under sections 27(3) and (4) of [Cap 163] was a wider concept than ‘conspiracy’ and the question to ask and answer was whether the persons who were said to have acted in collusion were ‘playing the same game’ and identified their interests with the money lender’s than the borrower’s. It would be sufficient for such person and money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitating the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. The game was the stripping away of the borrower’s assets (whether from the loan or otherwise) by imposition additional fees on top of the interest and did not require any explicit or implicit agreement to be found ….”

124.  Having considered all the evidence, I find Matt’s was clearly the intermediary involved in referring D1’s loan application to P. Matt’s and P were playing the same game in the imposition of additional fees on the loan amount on top of the interest. I find that Matt’s was acting in collusion with P in charging and receiving HKD 200,000 for service fee in connection with procuring , negotiating or obtaining the loan from P to D1 under the 2^nd Loan Agreement and secured by the 2^nd Legal Charge. Such payment and receipt would fall foul of section 27(3) of Cap 163.

125.  As pointed out by DHCJ William Wong SC in Skyline Credit Limited and Leung Hing Chung, [2019] HKCFI 169, HCA 639/2016, the borrower has 3 options under section 27(4) of MLO[57]:

(1)  Set off the amount or value thereof against the amount actually lent;

(2)  Recover the amount or value thereof from the money lender’s partner, employer, employee, principal or agent or any person acting for or in collusion[58] (“Related Parties”);

(3)  Recover the amount or value thereof from the money lender.

126.  DHCJ Wong SC also highlighted two points, namely first, it was up to the borrower to elect whether to invoke his rights under section 27(4) and if so which option to pursue according to the circumstances of the case, and second the wording of section 27(4) mandates that the borrower has an option and the choice rests with the borrower.

127.  In light of the above, even though P and Matt’s were in contravention of section 27(3) of MLO, only D1 has the right to select which option under section 27(4) to pursue. D2 has no right to do so. Further, Matt’s is not even a party in these proceedings. Accordingly, I am not prepared to make any order under section 27(4) of MLO.

I.4  Issue (2) – Illegality and unenforceability

128.  Issue (2) is framed as follows:

“Whether the 2^nd Loan Agreement and the 2^nd Legal Charge are void, illegal and unenforceable by virtue of ss 22(1)(c), 24(1) & (2) and/or 27(3) and (4) of MLO?”

129.  For Issue (2), as mentioned earlier, D2 relied on paragraphs 5, 10, 18, and 19 of RAD&C where it is pleaded (i) P’s alleged compliance with MLO was put to strict proof, (ii) the doctrine of ex turpi causa non oritur actio, (iii) breach of section 27 of MLO by way of collusion.

130.  As mentioned earlier, at the hearing on 10 November 2015, P was granted the Monetary Order by Master Lai upon Mr Ng’s 1^st and 2^nd affirmation and D2’s 2^nd affirmation. As seen from Mr Ng’s 2^nd affirmation, P was only claiming an amount of the Revised Loan of HKD 1,188,000 from D1, being the amount actually lent to D1, namely P did not include the amount of the “Up Front Fee” of HKD 12,000 paid to P. The interest rate P claimed was 22% per annum.

131.  Mr Ng had said the following in his 2^nd affirmation on 28 July 2015 with regards to the relevant clauses of the 2^nd Loan Agreement that may amount to breach of MLO:

(1)  Section 21 of MLO – Clause 12 regarding the early repayment, P confirmed that no prepaid fee or administration fee of 3% of the original loan had ever been charged to D1

(2)  Section 22 of MLO – Third paragraph under Clause 2 regarding the increased default rate, P understood that it was illegal to charge the increased rate and requested the Court to exercise the discretion under section 22(2) of MLO to hold the 2^nd Loan Agreement after taking all the circumstances set out in paragraphs 7-10 of Mr Ng’s 2^nd affirmation to such extent that the third paragraph of paragraph of Clause 2 be disregarded and deleted

(3)  Section 27 of MLO – Clause 12(a) regarding the “Up Front Fee” of 1 % of the loan, and this was deducted from the original principal loan amount and the interest accrued is based on the sum of HKD 1,188,000.

132.  By granting D1 the Monetary Order based on HKD 1,188,000 and interest rate of 22% per annum, Master Lai would have been satisfied that in all the circumstances it would be inequitable that the 2^nd Loan Agreement should be held to be unenforceable, even though this was not clearly stated in the Monetary Order of 10 November 2015, nor there appeared to have been any written reasons handed down.

133.  It is submitted by Mr Cheung that any retrospective abandonment is insufficient to validate an illegal contract and that if allowed would be contrary to the spirit and legislative purpose of the MLO, as reflected in sections 24(3) and 25(4)(a). I have to say I tend to agree. In my view, there must be compliance by the money lender with MLO at the time of entering into the loan agreement with the borrower, and not some 2 years after the loan agreement had been effected. In fact, D1 did pay the interest of HKD 22,000 on 4 October 2013[59] prior to the amendment of those clauses in breach of the MLO.

134.  In any event, as set out earlier, this Court is of the view that there has been contravention of section 27(3) of MLO. It has been held by DHCJ William Wong SC in Skyline Credit that section 27 of MLO does not give money lenders a statutory right to reduce the effective rate of interest under sections 2, 24 and 25 of the MLO[60].

135.  I agree with the views expressed by DHCJ William Wong SC. It is not for P to decide under section 27(4) whether to reduce the amount of loan principal claimed, or in any other words, to simply abandon its claim for HKD 200,000 in light of this Court’s finding under section 27(3).

136.  The fact is D1 only received a sum of HKD 981,015 out of the loan amount of HKD 1,200,000 in the 2^nd Loan Agreement[61].

137.  P has been put to strict proof by D2 that the terms of the 2^nd Loan Agreement were in compliance of the provisions of the MLO. It is for P to satisfy this Court that the 2^nd Loan Agreement is lawful and enforceable under the MLO. I do not find P has discharged its burden.

I.5  Issue (3) – whether the 2^nd Loan Agreement was extortionate contrary to section 25(2) of MLO and should the Court exercise its discretion under section 25(1) of MLO in reopening the transaction

138.  According to D2’s calculation, the effective rate of interest of the 2^nd Loan Agreement was 49.2% if all the relevant charges were included, namely for the loan term of one calendar year, effectively D1 had to pay (i) HKD 12,000 to P[62] + (ii) HKD 200,000 to Matt’s[63] + (iii) HKD 6,985 to KBC for the legal costs[64] + (iv) HKD 264,000 (ie 22% interest on HKD 1,200,000) totalling some HKD 482,985, and all D1 received by way of the loan amount was HKD 981,015[65].

139.  It was put to Mr Ng at the trial by Mr Cheung that P separated the charges and payments to Sky Glory and to Matt’s because if all 4 items of the above payment were added together, the effective interest rate would be some 49.2%. Mr Ng’s response was he objected to this as P did not know Matt’s and that they did not have any contact with Matt’s at the time and they only knew of the involvement of Matt’s later. However, there did not appear to be any denial on his part as to the calculation of 49.2% per annum being the effective interest rate put to him by Mr Cheung.

140.  Having said this, Mr Cheung had used HKD 981,015 as the basis for his calculation in arriving at the 49.2% effective rate. However, in my view the basis used should be HKD 1.2m instead.

141.  Having considered Mr Cheung’s submissions, even if all the 4 items of payments were added together, namely a total sum of HKD 482,985, and regarded effectively to be “interests”, for a one year term loan, it should be about 40.2% of the principal amount of HKD 1,200,000. This rate even though high, did not appear to contravene the provision in the MLO. I am not satisfied that the effective interest rate can be regarded as extortionate under MLO.

J.  ISSUES 4 & 5 – THE LETTER OF CONFIRMATON AND WHETHER THE 1^ST LOAN AGREEMENT, THE 1^ST LEGAL CHARGE AND / OR THE 2^ND LEGAL CHARGE ARE VALID AND ENFORCEABLE

142.  These were issues mainly between D2 and the Third Party Pacific Financial and P was neutral on these issues, save where it affected the validity and enforceability of the 2^nd Legal Charge.

143.  It is D2’s case that the Letter of Confirmation and the 1^st Legal Charge are prima facie illegal and the reason is the date of the Letter of Confirmation was 18 July 2013[66] and it was registered in the Land Registry on that day[67], whereas the date of the 1^st Legal Charge was 17 July 2013, namely one day earlier. The 1^st Loan Agreement and the 1^st Legal Charge were thus in breach of the statutory requirements under Clauses 1 and 4(a) of the Schedule to the Housing Ordinance, Cap 283 and by virtue of Section 17B of Cap 283, the 1^st Loan Agreement and the 1^st Legal Charge were unlawful/illegal and void ab initio and unenforceable.

144.  According to the amended points of defence filed by Pacific Financial, after the signing of the 1^st Loan Agreement which took place late on 17 July 2013, and after close of business, Pacific Financial delivered a cheque dated 16 July 2013 to their solicitors Messrs Day & Chan for the sum of HKD 3,000,000 being the principal loan amount under the 1^st Loan Agreement. The loan drawdown took place on 18 July 2013, Messrs Day & Chan delivered a cheque dated 18 July 2013 to HKHA in the sum of HKD 1,513,969 for the payment of the premium, a cheque of HKD 150,000 to Matt Tam for his fees, and a cheque for HKD 1,336,031 being the loan amount to D1[68]. Pacific Financial averred that the 1^st Legal Charge was in fact executed and only took place on 18 July 2013 and it was not executed on 17 July 2013[69]. It was further the pleaded case of Pacific Financial that even if which was denied that the 1^st Legal Charge was in breach of section 17B of Cap 283 and those other provisions alleged by D2 the effect of section 17B is only limited to the agreement concerned and they do not have the effect of nullifying the agreement relating to the advancement and repayment of the loan on that, the 1^st Loan Agreement was enforceable.

145.  Having considered the above, even though the 1^st Loan Agreement and 1^st Legal Charge were dated 17 July 2013, the loan draw-down did not take place until 18 July 2013. Thus D1 did not receive any loan amount prior to the Letter of Confirmation issued by HKHA or prior to the removal of alienation restrictions. I am not satisfied that the 1^st Loan Agreement and/or the 1^st Legal Charge is/was illegal and/or unenforceable, or that the 2^nd Legal Charge was tainted with illegality and/or unenforceable by reason of the 1^st Loan Agreement and/or 1^st Legal Charges being illegal and/or unenforceable. I am not prepared to grant a declaration that the 1^st Loan Agreement and the 1^st Legal Charge were unlawful/illegal and/or void ab initio and unenforceable, or that the 2^nd Legal Charge was void ab initio and unenforceable.

K.  CONCLUSION AND ORDER

146.  In light of all said above, I grant a declaration that D2 is the beneficial owner of 50% share of the Property. D2’s claim against P for a declaration that the 2^nd Legal Charge was void ab initio and unenforceable by reason of the 1^st Loan Agreement and the 1^st Legal Charge was illegal and unenforceable under the provisions of Cap 283 shall be dismissed. D2’s claim against the Third Party in paragraph 30(a) and (b) of her Points of Claim against the Third party shall be dismissed.

147.  P’s claim for delivery of vacant possession of the Property pursuant to the 2^nd Loan Agreement and/or the 2^nd Legal Charge against D2 under the present proceedings shall be dismissed.

148.  As for costs, as D2 is the overall successful party, I order P to pay her costs of P’s claim and D2’s counterclaim, to be taxed on party and party basis, and in accordance with the Legal Aid Regulations. As for the Third Party Action, there be no order as to costs as between D2 and the Third Party Pacific Financial, save that D2’s own costs be taxed under Legal Aid Regulations. These are costs order nisi and shall be made final after 21 days.