WOC FINANCE CO. LTD. v. CHAN MARY

HCMP 42/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 42 OF 2001

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REASONS FOR JUDGMENT

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1. These proceedings, commenced in the District Court, but transferred to the High Court by Order of the Registrar on 16 November 2000, are essentially a mortgage action under Order 88, and concern a loan agreement dated 25 July 2000, and a second mortgage dated 26 July 2000, by which the plaintiff lent to the defendant the sum of $350,000.00 for a period of one year, secured by charge on her property at Way Man Court, 50/52 Village Road, Hong Kong. In this action the plaintiff seeks repayment of the loan with accrued interest, further interest until payment, and delivery of vacant possession of the property. At the hearing of the action, at which the defendant did not appear and was not represented, I gave judgment for the plaintiff, and now give my reasons for so doing.

2. The facts of this matter which appear from the evidence of the two witnesses for the plaintiff, Mr Yam Chuk Ling, its director, and Mr Tang Hing Keung, Kelvin, of Messrs Y T Szeto & Co., its solicitors, which I have no reason not to accept in full, are that the plaintiff, which is a licensed moneylender, was approached on 25 July 2000 by the defendant who was accompanied by a Chinese male who identified himself as Mr Cheung Kim Hung of Fu Po Finance Consultant Company. Mr Yam did not know either of them. There is some dispute on the pleadings as to the identity of this Mr Cheung, as the defence pleads that it was a Mr Cheung Yiu Hung of Hangtech Consultants Limited, who were the plaintiff's agents, who took the defendant there. However, this is denied by Mr Yam for the plaintiff, and in the witness statement of Mr Cheung Yiu Hung filed for the defendant, there is no mention of any relationship to the plaintiff. In any event, the defendant applied for a loan of $350,000.00 secured on her property and signed a loan agreement to this effect, and an undertaking, the effect of which was that the loan was for a period of one year at an interest rate of 24.5% over prime rate from time to time. Mr Yam explains the high interest rate as covering the higher risk of short term loans on second mortgages to persons such as the defendant, with whom no enquiries are made as to their ability to repay, although they would never lend without security.

3. At that meeting the defendant was asked about security and produced to the plaintiff a copy of a facility letter showing that her property was mortgaged to the Hang Seng Bank for $3,360,000.00 on a 20 year instalment mortgage. The defendant did not mention to the plaintiff that there were any other mortgages in respect of the property.

4. The next day the defendant went to the plaintiff's solicitors, again with Mr Cheung Kim Hung, where Mr Tang prepared the mortgage documents. He had already, on being notified by the plaintiff, obtained the previous day a copy of a land search on the defendant's property showing the only outstanding charge on the property was the Hang Seng mortgage, dated 6 July 2000, lodged pending registration, two previous charges in favour of one Chan Wing Cheung, Danny, and Silver Bound Capital Ltd, having been released and discharged, also on 6 July 2000, and Mr Cheung produced copies of the releases as well as the Hang Seng mortgage to him. Immediately prior to the defendant's appointment on 26 July, Mr Tang obtained a further land search which showed the same information. The defendant then signed an undertaking which confirmed inter alia that the Hang Seng mortgage was the only other mortgage on the property, and the second mortgage itself which repeated that confirmation. Mr Tang explained the contents of these documents to her, and she also signed an acknowledgement that it had been so explained, and that she had been invited to seek independent legal advice, which she declined to do. The loan of $350,000.00 was advanced to her upon completion of these documents.

5. On 23 August 2000 Mr Tang caused a further land search to be made on the defendant's property and discovered that, contrary to the information given by her at the time and her undertaking to the plaintiff, the defendant had in fact, on 6 July 2000, re-mortgaged the property to Chan Wing Cheung, Danny, for a sum of $515,000.00 and to Silver Bound Capital Ltd for an "all moneys" consideration. These charges were registered with the Land Registry on 27 July 2000 and 28 July 2000 respectively, being the day after the loan was made by the plaintiff, and the day after that. Neither accordingly would have shown on the searches carried out for the plaintiff prior to the loan, but, being registered within the period specified in the Land Registration Ordinance, prima facie take precedence over that of the plaintiff. On discovering this, the plaintiff immediately demanded repayment of the loan and informed the police, inviting them to investigate whether a crime had been committed.

6. In her defence the defendant does not dispute the loan or its legality. The main defence is that the plaintiff knew, through its agent Hangtech, which had arranged her other mortgages, of those mortgages, and was therefore wrong to demand repayment before the period of the loan had expired, and further that the documents signed by the defendant were never explained to her and are accordingly void or voidable. However, I accept the evidence of the plaintiff that Hangtech was not its agent and that there was no knowledge of the other mortgages, and there is no evidence from the defendant to support that assertion. I also accept that Mr Tang did explain to the defendant the contents and meaning of the documents, and that she freely undertook that the Hang Seng mortgage was the only other charge on the property. I accordingly find that the defendant lied to the plaintiff in order to secure this loan, and deliberately concealed the existence of the other mortgages, which were taken out the day the previous charges in favour of the same lenders were discharged, and not registered until immediately after this loan was made.

7. On the evidence before me there is a level of dishonesty exhibited by the defendant which can only be described as fraud, and the plaintiff is clearly entitled to recover from the defendant forthwith the amount of the loan and the interest on it. Apart from a sum of $12,957.00 towards that interest, paid in September 2000, nothing else has been repaid by the defendant. Although the plaintiff would normally be entitled to interest after judgment at the judgment rate only, Mr Lee for the plaintiff has urged me to award interest after judgment at the contractual rate, his argument being that, apart from the fraudulent behaviour of the defendant, the plaintiff would not have lent the money if it had known of the other mortgages, and would have been free to lend that money at similar rates to others. I have some sympathy for the plaintiff here. While it is clear that the rules of court as to payment of a higher than the statutory rate have been strictly interpreted in the past, and in particular, there is usually no such order for such higher payment unless the contract specifically provides for it, section 49 of the High Court Ordinance appears to give a wide discretion on the court to order interest after judgment at a rate other than the statutory rate. In my view this is a case where that discretion should be exercised in favour of the plaintiff, and interest should continue to accrue at the rate agreed by the defendant when the loan was first made, that is at 24.5% over prime rate from time to time.

8. I accordingly gave judgment for the sum of $415,974.99, being the loan principal and interest thereon to 26 March 2001, with further interest on the principal of $350,000.00 at the contractual rate as above from 27 March 2001 to the date of payment, and on the reducing amount if partial payments are made. I also gave judgment for vacant possession of the property pursuant to the terms of the second mortgage, with liberty to apply in respect of any further or consequential orders in relation to that possession.

9. Under the terms paragraph 16 of the mortgage, the defendant is liable to pay any costs incurred by the plaintiff on an indemnity basis. In the circumstances of this case I would have been inclined to make such an order in any event to reflect my disapproval of the conduct of the defendant. There will also therefore be an order that the defendant pays the costs of these proceedings to be taxed on the indemnity basis.