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

CACV 130/2020

[2021] HKCA 1473

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 130 OF 2020

(ON APPEAL FROM HCMP NO. 2729 OF 2015)

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J U D G M E N T

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Hon Cheung JA (giving Judgment of the Court) :

I.     The appeal

1.  The plaintiff is a money lender under the Money Lenders Ordinance (Cap. 163) (‘MLO’).  By a loan agreement (the ‘Loan Agreement’) entered into by the plaintiff and the defendantsdated 5 June 2015, the plaintiff granted a loan ofHK$3,000,000.00 (the ‘Loan’) to the 1^st and 2^nd defendants on the security of a property in Gillies Mansion jointly owned by the defendants.   The property was mortgaged by the defendants to the plaintiff by a mortgage dated 5 June 2015 (‘the Mortgage’).  The Loan was advanced to the defendants on 5 June 2015.

2.  Under the Loan Agreement the defendants were required to pay the plaintiff, inter alia, the following :

1)     Interest on the Loan at the rate of 18% per annum (the ‘Interest’).

2)     The Loan and the Interest should be paid by 120 monthly instalments each inthe sum of HK$54,055.56 for payment of interest and repayment of the Loan.  The first instalment should be paid by 5 July 2015 and the subsequentinstalments should be paid by the 5^th day of each and every subsequentcalendar month.

3.  Under the Mortgage, the defendants covenanted with the plaintiff thatthey would pay the plaintiff all sums of money which might be outstandingtogether with interest accrued and to be accrued thereon (Clause 2.01).

1)     By Clauses 6.01 and 7.01, if there is default in the payment of money or interest the plaintiff is entitled to enter into and hold the property and without any consent of the defendants and also whether inpossession or not sell the property (Clauses 6.01 and 7.01).

2)     The defendants should pay costs incurred or to beincurred by the plaintiff in the lawful exercise of the powers conferred uponit by the Mortgage on full indemnity basis (Clause 17).

4.  The plaintiff claimed that in breach of the Loan Agreement, the defendants have failed and refused to pay to the plaintiff any instalments since the instalment due on 5 September 2015.  Such failure also amounted to a breach of the Mortgage.

5.  The defendants had also failed to comply with the plaintiff’s letter of demand dated 23 September 2015 to pay all sums of money then remaining outstanding to the plaintiff. By the demand letter notice was also given to the defendants that unless the sums were paid to the plaintiff, the plaintiff would exercise its right under the Mortgage and for recovery of the sums without further notice.

6.  The plaintiff sought the following sums from the defendants :

1)      Outstanding amount of the Loan: HK$2,891,438; and

2)      Interest at 18% per annum on HK$2,891,438 from 6 August 2015 to 6 March 2019: HK$1,865,096.34.

7.  The total amount due to the plaintiff is HK$4,756,534.34 ((1) + (2)) while interest continues to accrue on HK$2,891,438 from 7 March 2019.

8.  The plaintiff also sought vacant possession of the property.

9.  The defendants pleaded that the plaintiff together with a company named Tophill International Account Affairs Limited (領峰國際會計事務所有限公司) (‘Tophill’) which was the agent of the plaintiff or a party acting in collusion with the plaintiff deceived the defendants into entering the Loan Agreement and the Mortgage and charged and received from the defendants such sums of money for procuring the Loan Agreement and the Mortgage in contravention of section 27 of MLO and interest at such excessive rate in contravention of section 24 of MLO. 

10.  Ng J tried the case and gave judgment for the plaintiff.  The 1^st and 2^nd defendants now appeal.

II.     Background

11.  The Judge summarised the background of the case as follows.

1)     The defendants’ case

12.  The defendants are a married couple.  They claimed to have retired and were at the material time financially supported by their children who were aged between 45 and 51 years old.

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

14.  There is no dispute that the defendants signed the Loan Agreement which contained a memorandum (‘Memorandum’) and a repayment schedule (‘Repayment Schedule’), all in Chinese and English, and the Mortgage.  

15.  The Judge held that :

‘ While there is a pleaded factual assertion by the defendants that the documents were not explained to them at the time of signing, they have not run any case of vitiating factors as their legal defence. The Plaintiff is thus content to rely on the well-known principles stated in Ming Shiu Chung & Others v Ming Shiu Sum & Others (2006) 9 HKCFAR 334 at [83]‑[87] in order to hold the Defendants to what they had chosen to sign.’

16.  On behalf of the defendants, the 2^nd defendant gave evidence.

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

17.  In early April 2015, the defendants were indebted as follows :

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

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

18.  In order to avoid further escalation of the 2^nd defendant’s Credit Card Debts, the defendants decided to borrow HK$160,000 to completely pay them off.  They thus decided to apply to UA.  However, due to their old age UA was worried that they had no capability to repay, so the application was rejected.

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

20.  On 21 April 2015, a man holding himself out as a staff of HSBC called the 2^nd defendant to promote a low-interest loan.  When the 2^nd defendant expressed interest, the man asked her to go to an address at Eu Yan Sang Tower, Tsim Sha Tsui, to discuss the loan details.

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

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

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

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

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

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

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

(2)     2^nd Scam—Tophill and the plaintiff: the Loan

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

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

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

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

32.  The 2^nd defendant said she thought both Mr. Fung and Miss Cheung were very sincere and the defendants completely trusted what Mr. Fung said.  They therefore signed the authorization letter without knowing its particulars or the necessity to borrow HK$1.5 million.  Afterwards, Mr. Fung said that the finance company would assign a Mr. Chan in the morning of 5 June 2015 to inspect the property.  After the inspection, Mr. Ng of Tophill would meet them in Central MTR station and bring them to a finance company to sign the loan documents.  Mr. Fung emphasized that after signing the documents, the defendants had to cash the cheque issued by the finance company and bring the cash back to Tophill’s office immediately.  The defendants agreed to the arrangement without question.

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

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

35.  Later that morning, the defendants met Mr. Ng of Tophill at Central MTR Station and were brought to a nearby office.  They presumed it to be the office of the finance company but only later found out it was the office of Au Thong Tsang solicitors (‘ATT’). 

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

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

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

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

2)     The plaintiff’s case

40.  The plaintiff’s witnesses were Keith Lau, the plaintiff’s manager who handled the defendants’ application and Calvin Chan, a clerk of ATT who met with the defendants on 5 June 2015 at ATT’s office, handled the loan documentation and the issue of cheques to the defendants.

41.  The plaintiff’s case is that it did not know and had no relationship with Tophill, King Fung or Maxcolm whatsoever.  There was no collusion between the plaintiff and Tophill to deceive the defendants as alleged.  On a more general level, the plaintiff had never engaged or paid any intermediary or middle man to refer clients to it. While the plaintiff had received client referrals from time to time, it had never paid or promised to pay any fees for such referrals—it has its own strong clientele and does not need to rely on client referrals for its business.  The plaintiff’s account of the events leading to the grant of the Loan is as follows.

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

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

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

2)     Copies of the defendants’ HKID cards. 

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

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

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

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

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

1)     The defendants had obtained a HK$1.6 million mortgage loan from Maxcolm secured by the property.  

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

3)     Keith Lau told the 2^nd defendant that the plaintiff would charge an interest rate of 18% per annum, and owing to the defendants’ age, the loan period would be 10 years and on that basis, the monthly repayment amount would be HK$54,055.56. 

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

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

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

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

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

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

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

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

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

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

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

(2) The defendants also agreed to the use of the Loan amount as follows :

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

(ii) HK$108,112 to be paid to the plaintiff, being two months of instalment payments in advance i.e. for July and August 2015;

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

(iv) The balance be paid to the defendants.

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

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

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

(1) the Mortgage;

(2) a confirmation letter reminding them to seek independent legal advice concerning the Mortgage.  The Chinese part of the confirmation letter stated that :

「 本人／我們，下方簽署者，茲確認下述及作出以下聲明：

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

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

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

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

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

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

(ii) HK$450 to the Government;

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

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

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

III. Grounds of appeal

48.  The defendants relied on six grounds of appeal.  Two of the grounds include sub‑grounds :

1) The Judge wrongly applied the objective test instead of the subjective test in dealing with the state of mind of the defendants.

2) a) &b) The Judge wrongly held that the son had signed on loan agreements and mortgage documents (‘the poison tree argument’).

2) c) The Judge wrongly held that the defendants’ case is based solely on the 2^nd defendant’s evidence alone when there is other supporting evidence in favour of the defendants’ case.

3) The plaintiff failed to call two witnesses, namely, Jerry Ng (Excellent Rich) and Raymond Cheung (Lau’s assistant) and the Judge erred in not drawing adverse inference from their absence against the plaintiff.

4) a)  The Judge gave the judgment one year after the trial and by reason of the delay he had failed to consider some important evidence.  He failed to refer to the contemporary materials.

4) b) The Judge failed to consider the challenge to Keith Lau and Calvin Chan’s evidence, for example, the issue of the uncrossed bearer cheque.

4) c) The Judge failed to assess the evidence that Keith Lau had asked the defendants whether they were referred to the plaintiff by Mr. Fung to borrow $1.5 million.

5) The findings of the Judge were the fruit of the poisoned tree.

6) The Judge wrongly considered that there was nothing in the 2^nd defendant’s evidence which implicated the plaintiff in the collusion.

IV.     Our view

1)     Basis of the Judge’s decision

49.  Before we consider the grounds of appeal, it is necessary to take an overview of how the Judge decided the case.

50.  It is clear from the judgment that the Judge made findings against the defendants not merely by reference to the demeanour of the witnesses but also by reference to the inherent probability of the parties’ respective cases.  The Judge examined each scam separately and commented that the methods of the two scams are similar.  He questioned why the defendants would fall again for the second scam so soon after they had realized that they were victims of the first scam.

51.  In respect of the first scam that the defendants relied upon, the Judge found their case to be inherently improbable.

‘ 35. First, the Defendants said they only wanted to borrow HK$160,000 to clear the Credit Card Debts. In the end, they knew and agreed to borrow HK$1.1 million (but not HK$1.6 million) from Maxcolm for no obvious reason. Even if the Defendants had somehow been persuaded by Mr Kan to borrow more to discharge the UA Loan as well, they would still only need around HK$570,000, plus the 5 instalments which added up to HK$175,000, not HK$1.l million. Further, Mr Kan did not explain why the original monthly instalment of HK$35,000 charged by a finance company could subsequently be reduced to HK$7,766 after the transfer to HSBC.

36. Second, the Defendants said they first tried to borrow that HK$160,000 from UA, which was then the mortgagee of the Property under the UA Loan. Even UA, a secured creditor, was unwilling to lend that relatively small sum to them. Why did the Defendants think other finance companies, let alone HSBC, would be willing to lend HK$l.1 million to them when the Property had already been mortgaged to UA?

37. Third, if the Defendants knew and agreed to borrow HK$1.1 million from Maxcolm, they should receive HK$l.l million.  They did receive HK$1.l million from Maxcolm but they immediately gave it back to Mr Kan who then curiously gave back HK$380,000 to the 2^nd Defendant. Inexplicably, the Defendants did what Mr Kan told them to do. In the end, apart from the HK$380,000, the Defendants only received a refund of merely HK$65,933.20. And out of the HK$380,000, after paying some Credit Card Debts and the 5 instalments, the Defendants were left with less than HK$70,000.

38. It is just completely beyond belief that 2 adults would agree to borrow HK$1.l million (when in fact they borrowed HK$1.6 million) but were content to end up with around HK$135,000 in their pocket without having their eyes wide open and knowing what they have committed themselves to.

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

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

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

(1) A Chinese loan agreement with Maxcolm dated 4 May 2015 as well as a repayment schedule which stated the loan was in the sum of HK1.6 million with interest at 28.8% p.a..  The loan agreement also referred to the Property as security for the loan.

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

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

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

52.  In respect of the second scam, again the Judge found the defendants’ case to be inherently improbable.

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

....

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

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

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

57.     First, the unique features in both scams were strikingly similar: (i) the requirement of obtaining a loan in an amount much larger than was necessary for the stated purpose ― a loan of (originally) HK$1.l million to pay off the UA Loan plus Credit Card Debts and a loan of HK$1.5 million in order to chase back HK$720,000; (ii) the promise of replacing the original loans with other low-interest loans within a short time by complete strangers; (iii) the signing of all documents without explanation of their nature; (iv) the escort by a staff of the fraudsters throughout the process; and (iv) the handing over of cash to the fraudsters immediately after obtaining the loans.

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

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

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

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

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

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

53.  Based on the above, the Judge found that the 2^nd defendant was a wholly untruthful witness and he had no difficulty rejecting her evidence.  The Judge went on to hold that :

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

54.  In respect of the plaintiff, the Judge found :

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

55.  The Judge concluded :

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

2)     The grounds

56.  Having seen the basis of the Judge’s decision, it is clear that the grounds of appeal are essentially challenges to the findings of fact by the Judge.  Mr. Ho for the defendants submitted that the findings of fact which the Judge based on to disbelieve the evidence of the 2^nd defendant were plainly wrong and this was the poisoned tree which poisoned all his subsequent findings against the 2^nd defendant.  It is well established that an appeal against a finding of fact will only succeed if it is shown that the finding is plainly wrong.  This principle is not merely in deference to the trial judge who had the benefit of seeing and hearing the witnesses at first hand but a recognition that no matter how carefully the Judge wrote the judgment, it is inherently an incomplete statement of the impression upon the Judge who had the benefit of assessing the whole of the evidence that unfolded before him.  By contrast, the appeal court’s perception may be narrowed or even distorted by the focused challenge to particular parts of the evidence : see the summary of the principles in China Gold Finance Limited v CIL Holdings Limited and Others CACV 11/2015, unrep., 27 November 2015.

Ground 1

57.  Although Ground 1 is dressed up as a question of law, in reality it is a challenge of the finding of fact by the Judge.  Mr. Ho relied on the statement made by the Judge :

‘ [20] ... the scams were so improbable as to verge on it being ridiculous for anyone, however elderly, ignorant and gullible, to fall for them’

in support of his argument that the Judge relied on an objective test.  In our view that statement must be considered in its context and by reference to other parts of the judgment as well.  It is clear that the Judge had considered the subjective minds of the defendants but held that their alleged ignorance that they were being deceived in the two scams to be inherently improbable by reference to the fact that they had signed documents without asking for any explanation on repeated occasions, they trusted strangers unreservedly and repeatedly, and they knew exactly what they had committed themselves to. 

58.  Mr. Ho eventually conceded that this ground is not decisive to his appeal.

Ground 2 a) and b)

59.  Mr. Ho is correct that the Judge was wrong to hold that the defendants’ son had also signed on the loan and mortgage documents when all that he had done was to sign on the copies of these documents which were attached to the police statement made by the 1^st defendant.  The son had accompanied the defendants to the police station and was asked to sign on the police statement together with its attached documents.  But it is apparent from the judgment the Judge did not make his finding simply because of the son’s signature on the documents or that the defendants’ other children knew of the scams as well.  He rejected the defendants’ case because of its improbable nature.

Ground 2(c)

60.  Mr. Ho argued that the Judge was plainly wrong when he said that the defence was based only on the evidence of the 2^nd defendant who gave evidence. He submitted that the Judge had completely ignored or forgotten about the contemporaneous entries in the 2^nd defendant’s pocket book, particularly those recording instructions received by her from Tophill, about where to wait for escort, where and when to meet etc; there was the uncrossed bearer cheque for HK$1,241,438 received from ATT which was ‘cheated’ from the defendants on 5 June 2015 and the receipt from Tophill for HK$140,000 and HK$1,094,638 for consultancy fees dated 1 June 2015 and 5 June 2015 respectively.  He submitted that the 2^nd defendant had to be mad to pay these huge sums for a loan of HK$1.5 million or even HK$3 million.  In our view, it is wrong to seize on the statement by the Judge at [21] that ‘the defendants’ factual case is supported by the testimony of the 2^nd defendant alone’ and argue that the Judge had ignored other evidence.  The Judge had considered the whole of the evidence and as he was entitled to do, rejected their case.  As Mr. Wong (together with Ms Chong) for the plaintiff submitted there was no duty on the part of the Judge to deal with each and every argument raised by the defendants.

Ground 3

61.  As to the absence of other key players from giving evidence for the plaintiff, Keith Lau had explained that attempts had been made to contact Jerry Ng but his telephone was disconnected.  Mr. Ho submitted that Keith Lau was not credible because none of his witness statements had given such an explanation.  The assessment of credibility of a witness is clearly a matter for the Judge and he found the plaintiff’s witnesses to be credible and had withstood cross‑examination. Mr. Ho failed to show the Judge was plainly wrong on this aspect.

62.  As to Raymond Cheung, Keith Lau was not asked in cross‑examination why the plaintiff had not called Raymond Cheung.  Further, according to Keith Lau there was no mention about an uncrossed bearer cheque when Raymond Cheung reported to Keith Lau at the office on 5 June 2015. It is clearly within the province of the Judge to accept Keith Lau’s evidence on this matter.

63.  Based on these facts, the argument on failure to draw adverse inference by reason of the absence of these two persons is not sustainable.

Ground 4

64.  The delay by the Judge in giving judgment is not by itself a ground to reverse the judgment unless there are omissions, errors, misunderstandings, inconsistencies and the like which invalidate the judge’s findings, render the judgment unsafe, and have led to injustice to the defendants.

65.  The question of contemporaneous documents that Mr. Ho relied upon as the Judge’s omission due to the delay in giving judgment had been considered by us.

66.  Mr. Ho submitted that the Judge had not properly addressed the issues of the uncrossed bearer’s cheque and the 2^nd defendant’s assertion that Keith Lau said to them that they were referred by Mr. Fung to borrow HK$1.5 million.  Calvin Chan had given evidence that the cash cheque was issued at the request of the 2^nd defendant.  The Judge at [75] of the judgment accepted his evidence.  He said he had no difficulty in accepting his testimony.  The Judge was entitled to do so.  Likewise, the Judge was entitled to accept Keith Lau’s evidence that it was a Mr. Jerry Ng, not Mr. Fung of Tophill, who contacted the plaintiff on 1 June 2015 and the cheques were issued in accordance with the defendants’ instructions.

67.  Mr. Ho relied on a new matter not covered in his notice of appeal or written submission, namely, when did the 2^nd defendant report the scams to the Police.  The Judge held that it was only in November 2015 that the 2^nd defendant reported to the Police.  Mr. Ho referred to the transcript of the evidence and submitted that the 2^nd defendant had said that the report was made in June 2015.  It is apparent from the police report made by the 2^nd defendant in November 2015 that the report she made in June 2015 was concerned with another scam and not the two scams in this case.  This is not a valid point.

Ground 5

68.  This ground is a repetition of the earlier other grounds which we have already dealt with.

Ground 6

69.  Ground 6 is again a repetition of the other grounds relied upon by the 2^nd defendant which we have already addressed.

70.  Mr. Ho had under the ambit of Ground 6 referred to the decision of this Court (Kwan VP, Chu JA and Barma JA) in Gain Wealth Global Credit & Finance Ltd v Chan Suk Fong [2020] 4 HKLRD 831.  We do not see how that case is relevant to Ground 6 since the Judge had found in this case (with which we agree) that no collusion had occurred.

V.     Respondent’s notice

71.  It is not necessary for us to consider the respondent’s notice.

VI.     Conclusion

72.  The appeal is dismissed.

73.  The plaintiff is to have the costs of the appeal with certificate for two counsel.

74.  The defendants’ own costs are to be taxed according to Legal Aid Regulations.