SHUN ON FINANCE LTD v. LEUNG CHUN WA

HCMP 1196/2016

[2024] HKCFI 1359

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1196 OF 2016

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JUDGMENT

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1.  This action was brought by the Plaintiff (“P”), a licensed money lender

(a)  to recover the outstanding principal of HK$1,500,000 and contractual interest at 30% per annum under a loan agreement entered into between the parties dated 30 October 2015 (respectively “the Loan” and “the Loan Agreement”); and

(b)  to enforce a 2^nd mortgage dated 30 October 2015 executed by the Defendant (“D”) in favour of P charging D’s property known as Flat E, 8^th Floor, Block 1, Neptune Terrace, Chai Wan (registered in the Land Registry by memorial no. 15112700700022) to secure the repayment of all sums due under the Loan Agreement (respectively “the 2^nd Mortgage” and “the Property”).

2.  Under the Loan Agreement, D was to pay the Loan and interest thereon by 12 monthly instalments – the 1^st to 11^th instalments each in the sum of HK$37,500 paying the interest and the 12^th instalment of HK$1,537,500 paying the last instalment of interest and repaying the principal.

3.  It is common ground that D reported to the Police on 18 November 2015, about 19 days after he signed the Loan Agreement and the 2^nd Mortgage, once he suspected that he had been defrauded. D nevertheless paid the 1^st instalment of interest on 30 November 2015. He has defaulted payment ever since.

4.  In a nutshell, D’s case is that he has fallen victim to a fraudulent scheme whereby Kam, Chu, Demon[1], F&M (all defined below) and P acted in combination to defraud D into believing that D was applying for a credit line from HSBC, that the Loan was merely part of a “銀監處貸款壓力測試”, that he need to pay over the Loan amount to perform the test which would take a month after which time he would be qualified for and could obtained the credit line and the money would then be returned, that the documents were all signed for show, and that the interest of the Loan would be paid for on his behalf by F&M. So defrauded, D paid the Loan amount to Chu. Chu gave D HK$37,500 for D to pay the 1^st instalment of interest. Upon enquiry, Chu disappeared with the money and the office of F&M was vacated.

5.  Initially, D pleaded, among others, the cause of action of conspiracy to defraud. By a substantial amendment of the Defence and Counterclaim made on 15 July 2021, D formally dropped that cause of action, though he maintained all the allegations in support of his remaining case.

6.  D’s present case now is that P has blatantly and extensively breached the following sections of the Money Lenders Ordinance Cap 163 (“MLO”) and should be visited with the attendant consequences as provided in a number of those sections :

(a)  section 7(1)(b);

(b)  section 18(1) and (2)(a), (g), (h) and (j);

(c)  section 21;

(d)  section 22;

(e)  section 24;

(f)  section 25; and

(g)  section 27(3) and (4).

7.  D further counterclaims that the Loan Agreement and the 2^nd Mortgage be declared void and unenforceable, and that the 2^nd Mortgage be discharged and its registration in the Land Registry be vacated.

8.  At trial, P only called one witness Mr Ng Wai Chun Wesley (“Ng”) and did not call Mr Cheung Ping Sum Kenneth (“Cheung”), who was P’s manager and has filed a witness statement. D was the only witness for his case.

D’s background and his financial situation immediately before the Loan

9.  The background matters relating to D, including his financial situation immediately prior to the signing of the Loan Agreement, was not disputed by P.

10.  D was born in Hong Kong in 1947 and received education only up to Form 2. He was aged 68 at the material time in 2015.

11.  D had been working as a full-time truck driver prior to 2012 earning about HK$20,000 a month. He retired in 2012. Thereafter, he worked part-time as a truck driver earning about HK$10,000 a month.

12.  In June 2007, D purchased the Property at the consideration of HK$1,620,000 paying the full price in cash after having sold his previous one.

13.  In 2012, his then wife (they divorced in 2021) gave birth to their daughter. To renovate the Property in anticipation of the coming of the baby and in November 2011, D took out a loan of HK$300,000 from HSBC with interest at the best lending rate minus 2.325% per annum (“the HSBC Loan”) and he mortgaged the Property as security.

14.  Immediately before D signed the Loan Agreement, he only had the following outstanding amounts owing:

(a)  The HSBC Loan with HK$40,539.47 outstanding because in July 2015 D withdrew HK$80,000 from his MPF to repay part of the HSBC Loan.

(b)  Credit card balances owing to HSBC in the total sum of HK$11,884.25.

(c)  Credit card balances owing to Aeon in the total sum of HK$87,548.

15.  D’s evidence was that at the time before he signed the Loan Agreement, he did not have any pressing financial need to borrow HK$1,500,000 from P or any other money lender; and that in any case, even if there were such a need for such a large loan, he could have borrowed from HSBC and secured such further loan by enlarging the existing mortgage of the Property.

16.  As I find D a generally credible and reliable witness (as explained below) and considering the above common ground and undisputed matters, I accept, as D said, that he had no apparent financial reason to take out the Loan.

D’s case and evidence of how he was defrauded, and my findings

17.  The fact that D was defrauded and his general account on how he was defrauded was not seriously challenged by P. The fact that he had met and discussed matters about the Loan with Chu was corroborated by his production of Chu’s name card. The fact that he had paid over the HK$1,500,000 loan amount to Chu was corroborated by document. P also reported to the Police once he had suspicion. His accounts given to the Police were consistent, save a specific aspect which P pointed out and relied on.

18.  P’s broad factual dispute with D was that Ng and ATT (defined below) had explained to D all the documents he signed and that D understood them. There were also several other specific factual disputes. I will resolve them here along the narrative.

19.  It is convenient at this juncture to give my view on the credibility of D as a witness. I have carefully observed and listened to him giving evidence. He had some difficulty in understanding long and more complicated questions and in providing answers relating to specific dates or the detail contents of some of the conversations. However, when it came to the key events, his evidence was spontaneous and clear, and was not shaken by cross-examination. I accept his evidence that he could remember the events clearly but not their specific dates or the details of some conversations. I accept and find that his difficulty in understanding long and more complicated questions or in giving precise dates was due to his old age (aged 76 at trial) and his relatively low education level. In P’s closing submissions, D’s general credibility and reliability as a witness was not seriously challenged. Thus, I find him a generally reliable and credible witness.

20.  Based on D’s evidence and the supporting documentary evidence that will be alluded to, I find that P had been defrauded and been defrauded in the manner below set out, which I find as facts.

21.  Sometime before 28 October 2015, D received a call from a man identifying himself as Mr Kam (“Kam”), a manager of the credit department of HSBC. Kam solicited D to apply for a credit line to cater for time of need. As D had borrowed the HSBC Loan and thus trusting HSBC and had a young daughter, D said he was interested. Kam said that D would be contacted later.

22.  On the same day, a female identifying herself as a staff of F & M (International) Limited (森淼(國際)有限公司) (“F&M”) called D in relation to the credit line D was interested to apply. She asked D to attend F&M’s office at Room 1503-1504, 15^th Floor, Podium Plaza, 5 Hanoi Road, Tsimshatsui (“the F&M Office”) on about 28 October 2015 and to bring his HKID card, bank book, address proof, mortgage statement and his TransUnion credit report.

23.  On about 28 October 2015, D met one Ms Chu (“Chu”) at the F&M office. There, Chu gave D a business card of F&M, but with “Ms Chu” and her mobile phone number written thereon with handwriting[2]. Chu through repeated persuasion successfully swayed D to apply for a credit line for the increased amount of HK$1,500,000 and not HK$600,000 which D originally had in mind. Chu stressed that interest would only be charged upon actual drawn down of any loan amount and that otherwise everything was completely free of charge. After D agreed to so apply, Chu told D that there was a “銀監處貸款壓力測試”, and to perform and pass that test, they would use the Property to obtain a loan of the same amount (ie. HK$1,500,000) to be paid to “銀監處”, and that afterwards, the HK$1,500,000 would be credited back to D’s HSBC account for D to repay the loan. D was coaxed. D then handed Chu his documents for her to take copies. D also agreed with Chu to meet a staff of F&M at 2pm on 30 October 2015 at the Sheung Wan MTR station for the purpose of completing the procedures for the application. They did meet on that day and the staff took D to the ATT Office (defined below).

24.  The first disputed specific factual matter was Ng’s evidence that in fact he had a telephone conversation with D to arrange the meeting with D in the ATT Office. In oral evidence, Ng said that he so remembered because in an internal memo of P dated 28 October 2015[3], there was written by him a note in handwriting “已收到客人電話，想明天簽”. D categorically denied that he had talked over the phone to Ng or anyone from P to arrange for that meeting. His version was that the meeting was arranged with Chu in the F&M Office.

25.  I have no difficulty in finding in favour of D’s version on balance of probabilities. It is common ground that prior to the alleged phone call with Ng, D and Ng had no contact. As will be alluded to, it was Ng’s clear evidence that the Loan was introduced to P by Demon and with whom he liaised, and that Demon took D to the ATT Office that day. There was not even a suggestion from either party that D knew about P prior to the ATT Office meeting or D would have the mobile phone number of Ng or the telephone number of P. Indeed, in the copy of the TransUnion credit report of D sent by Demon to P and now produced by P[4], the contact phone number of D was purposefully covered to hide the same from P, which clearly showed that Demon wanted to avoid the possibility of a direct contact by P to D. Taking these into account, it is in my view highly inherently improbable that D would call Ng or Ng would so abruptly call D, and to call D to arrange him to meet in the MTR station a staff of F&M, and not P’s. Had that been the case, it would mean that P/Ng had been working with F&M much closer than P now said. I thus find against Ng’s version and in favour of D’s. I will return to P’s internal memo and the handwritten note of Ng’s when discussing the evidence of Ng.

26.  Continuing with the narrative, and at about 1:55pm on 30 October 2015, D arrived at that MTR station. A male said to be a staff of F&M (“Staff A”) called D’s mobile phone. They met and Staff A took D to the office of Messrs Au, Thong & Tsang, Solicitors at Rooms 1402-1403, China Insurance Group Building, 141 Des Voeux Road Central (“ATT” and “the ATT Office”). After waited a while, D was led into a conference room while Staff A waited in the reception area outside.

27.  When D went into the room, Ng was already there. Ng handed D his business card. There, Ng asked D to sign on a number of documents.

28.  It is D’s evidence that when he was about to sign the “Offering Letter for Property Owner Loan” (“the Offer Letter”)[5], he noticed that it was written there that the “Monthly Repayment” was HK$37,500. D hesitated and refused to sign. Ng then called Chu in D’s presence, and then handed his phone to D for D to talk to Chu. D’s evidence was that Chu further assured D that these were all part of the “壓力測試”, that the monthly interest payment would be paid by F&M and that the documents were to be signed for show only as part of the “test”. Having been so assured and again coaxed, D continued to sign the documents. Ng then gave D a long document written in English (the 2^nd Mortgage) for D to sign. As assured by Chu that it was for show, D signed it. Ng then explained briefly the terms of the Loan. A staff of ATT then came into the room to collect all the documents. The staff of ATT then returned shortly after and gave D photocopies of the documents D signed (except the 2^nd Mortgage) and also gave D a cheque issued to D as payee by ATT for HK$1,499,550 (another cheque of HK$450 was issued with the Government as payee apparently for payment of certain fee). It is D’s evidence that when leaving the room, Ng told D that if the bank staff asked why he was withdrawing such a large amount of cash, D only need to say that it was for purchasing a real property; and that when D met Staff A in the reception area, Staff A told D the same.

29.  D’s account of what happened inside that room, particularly on 4 specific matters, are now hotly disputed by P and NG. Ng in evidence said that, and P cross-examined D as to, (a) when in the room Ng had explained all the documents in some detail to D, (b) a staff of ATT, Calvin Chan, came into the room to explain and interpret the 2^nd Mortgage to D in detail, (c) Ng never called Chu and handed D the phone and D never had a telephone conversation with Chu in the room, and (d) Ng never said to D that if a bank staff asked D why he was withdrawing such a large amount of cash, he should say that it was for the purchase of a real property.

30.  I find for D’s version over Ng’s version over these specific disputes.

31.  Firstly, I generally prefer D’s evidence over that of Ng’s. As will be alluded to, I find Ng an unreliable and incredible witness generally, I find him evasive in his answers over some material aspects and was clearly lying over others.

32.  Secondly, the following specific matters and reasons support my finding in favour of D’s version over the specific dispute as to whether Ng had only briefly explained the essential terms of the Loan to D (as D said) or whether Ng had explained every document D signed in detail and the staff of ATT had interpreted the 2^nd Mortgage to D (as Ng said):

(a)  the documents D signed were numerous, consisted of: (i) the said Offer Letter, (ii) the Loan Agreement of 3 pages which was in Chinese and in very small fonts[6], (iii) a “還款表” in Chinese[7], (iv) a summary of provisions of MLO in both English and Chinese but in tiny fonts[8], (v) the 2^nd Mortgage in English consisting of 38 pages[9], (vi) a letter to ATT in English authorizing the payment of HK$450 in favour of the Government of HKSAR[10], (vii) an acknowledgment to P and ATT in English acknowledging that D have been advised by ATT to obtain independent legal advice and that ATT only acted for P[11], and (viii) another acknowledgment to ATT in English acknowledging that D had been advised that consent from HSBC was required before creating the 2^nd Mortgage[12];

(b)  I accept D’s oral evidence relating to the timing of the events that day before and after he attended the ATT Office such that I further accept that he was in the room in the ATT Office for roughly half an hour only; and

(c)  having seen and heard D gave evidence, it was clear to me that his ability to understand documents was very limited and therefore the time required to explain all these documents, even if succinctly, must, in my assessment, be much more than half an hour.

33.  Thirdly, P emphasized that D’s version that Ng had called Chu in the room and then handed the phone over to D for him to talk to Chu had not been specifically mentioned in the police statements given by D. Mr Chau, counsel for P, therefore asked me to reject D’s version over this specific matter. I would not do so, in light of the other much weighty matters in favour of D’s version, as aforesaid. Moreover, I accept D’s explanation that this was a specific aspect that did not occur to him as an important detail and which he was only able to recall later.

34.  Fourthly, I also think D’s version that Ng made the call because D spotted the requirement of the payment of HK$37,500 (which surprised and deterred D from signing) has its inherently credibility. I would think that it was rather unusual that Chu, being a fraudster, would be prepared to pay to D, the victim, the amount of HK$37,500 in cash in the F&M Office. I think she would not do so unless she was forced to keep up the act and the fraud, and she was so forced because D raised the query over the HK$37,500 payment.

35.  Going back to the narrative, immediately after leaving the ATT Office, Staff A then took D to the Hang Seng Bank nearby to cash the cheque. They had to wait in line and altogether spent about an hour in the bank and eventually withdrawn the cash in the amount of HK$1,499,550. Staff A then took a taxi with D from Sheung Wan to the F&M Office in Tsimshatsui.

36.  In the F&M Office, Chu reiterated her story about “銀監處貸款壓力測試”and assured D that it would only take about a month and that after which time the money would be deposited into D’s HSBC account and D then could repay the Loan. Chu also handed HK$37,500 to D for him to pay the monthly payment to P which D would have to pay within that month while waiting for “the test” to be done. Being so assured and coaxed, D handed the HK$1,500,000 to Chu. Chu then issued a purported receipt in English dated 30 October 2015 with the chop of F&M affixed for D to sign and then to retain a copy[13]. The so-called receipt was in fact an “invoice” by F&M to D for “consultant fees” in the sum of HK$1,500,000.

37.  I accept D’s evidence and specifically find that (a) F&M at no time even mentioned to D that they were charging “consultant fees” in the amount of HK$1,500,000, (b) because D did not know English, he was deceived into believing that it was a receipt, and (c) if D knew the HK$1,500,000 was charged by F&M as “consultant fees”, he would never have agreed and would never have paid over the said sum to Chu.

38.  Around mid November 2015, D called Chu and Kam to enquire. Both assured D that the result of the “壓力測試” would be out soon and that once it was out, the HK$1,500,000 would be deposited into D’s account.

39.  In the morning of 18 November 2015, D visited the F&M Office to enquire in person. He discovered that the doors were locked. Suspecting that he had been defrauded, D then reported to the Police.

40.  Though the matter had been reported to the Police, D felt it prudent to, and did, pay the 1^st instalment with the cash of HK$37,500 he received from Chu. I accept his such explanation.

P’s case and Ng’s evidence, and my findings

41.  P denied that it had in any way conspired or colluded with any other party to defraud D, or in any way conducted its business improperly. P denied having breached the MLO.

42.  Ng was the manager of P at the material time. He said he graduated from a University in Canada and had previously worked in another financial company for half a year. He joined the employment of P in 2014.

43.  In oral evidence, he was specifically asked if he had been trained or informed by P as to the requirements of MLO, and he said he had not.

44.  His job duties were, among others and particularly, to look at the credit reports and assets of the intended borrower with a view to decide whether to approve or not to approve the loan. He said he reported to his superior one Mr 陳球 (“Chan”) and he would also consult one Mr 吳俊傑, also called Sam (“Sam”), a friend of 陳球, who he would address as “前輩”. Ng said Sam was very experienced in money lender’s business. Ng left the employment of P in 2016.

45.  In §6 of his witness statement, Ng said that D was a new customer introduced by “a financial intermediary “匯軒””. In P’s Answer to the Request for Particulars of the Reply and Defence to Counterclaim (§3(c)), P said that D was referred to P by “Damon of Wui Hin”. In oral evidence, Ng said his name was Demon, and he did not know his real name, and that he had met Demon socially, as well as in the office(s) of solicitors when Demon accompanied the borrower to that office to execute the loan documents. He said Demon had made about 20 to 30 referrals to him during his employment with P and a number of those were successful and loans were actually made by P. At some point in his oral evidence, he denied the intermediary was “Wui Hin” or“匯軒” and mentioned for the first time that Demon was employed by one “盛匯”. I find his evidence concerning the identity of Demon’s employer or the intermediary vague and evasive and that there was a complete and unexplained change from what he said in his witness statement.

46.  In oral evidence, Ng said that he had communicated by emails and Whatsapp with Demon, Chan and Sam about the Loan. However, none of such communications had been discovered by P in this action. Upon the Court’s and D’s enquiry at trial, P only produced one page containing a string of 2 emails[14] both sent on 28 October 2015, one forwarded from an email address callmeandcallyou@gmail.com to P at shunonfinance@gmail.com attaching 2 pdf files, one with the name “順安-梁振華 [Chinese name of D]”, and the other email was one sent by P to Sam forwarding the attachments to him.

47.  As said, it was Ng’s own evidence that in relation to the Loan there were also whatsapp messages exchanged and that specifically there were emails/whatsapps exchanged with Chan, however, no whatsapp message or communication with Chan has been produced by P. There was no explanation proffered as to why these other communications were not produced. I thus find that P has failed to discover all the relevant documents. It seems to me that the discovery of the said one-page email was only a selective discovery made by P when pressed.

48.  Very importantly, Ng in oral evidence also said clearly and unequivocally that the negotiation of the Loan was all conducted by the intermediary Demon and that he only met D in person for the first time on 30 October 2015 at the ATT’s Office. I so find. In fact, according to the evidence of not only D, but also Ng, D never visited P’s said licensed office before or around the time of the conclusion of the Loan Agreement. I so find. According to Ng’s evidence, he had the Loan Agreement and all other documents to be signed by D already prepared when D entered the room at the ATT Office, and he proceeded to explain them to D. Thus, there was no negotiation of the Loan having taken place even at the ATT Office. I so find.

49.  However, Ng said in his witness statement (§7) that “The terms of the loan agreement was negotiated and agreed at the office of the Plaintiff at Room 310, East Ocean Centre, 99 Granville Road, Tsimshatsui East, Kowloon, Hong Kong, the licensed place of business of the Plaintiff” (my emphasis). In light of the aforesaid, I find that Ng lied when he so said in his witness statement. I also find that the place, with whom, and how the Loan was negotiated a very material factual matter in this action. Ng having so lied on a very material matter, I would take this very much into account against him in assessing his credibility and reliability as a witness.

50.  Moreover, the same lie was told by Cheung in his witness statement (§8) where he claimed unequivocally that “the loan agreement was negotiated and completed at the office of the Plaintiff at Room 310, East Ocean Centre, 99 Granville Road, Tshimshatsui East, Kowloon, Hong Kong, the licenced place of business of the Plaintiff”.

51.  In oral evidence, Ng also said clearly that Demon would be paid commission/remuneration by the intermediary company for successfully solicited the Loan. When cross-examined, Ng insisted that P did not pay any commission/remuneration to Demon or his company. However, when pressed, Ng admitted that he would not have known whether his boss or other personnel of P might have paid out such commission/remuneration to the intermediary. He was also not able to give any response as to how and from whom, if not from P, Deman and/or the intermediary company would or could earn “the commission”. I think Ng was evasive and was not telling the Court the whole truth. I will return to this aspect of remuneration of the intermediary/Demon in due course.

52.  Importantly, in cross-examination, Ng said that on this occasion (ie 30 October 2015) Demon brought D to the ATT Office and Ng saw Demon present there[15]. I so find. From Ng’s such evidence and the evidence of D, the only and irresistible inference is, and I find, that Staff A was in fact Demon.

53.  Moreover, having found above that D and Ng had not had any telephone conversation prior to the only meeting between D and Ng on 30 October 2015, and in view of Ng’s own evidence that otherwise Demon was the person liaising with him on the Loan, I find that the irresistible inference is that it was Demon who telephoned Ng, prompting Ng to note down in the said internal memo of P dated 28 October 2015 that“已收到客人電話，想明天簽”, and that Demon was referred to by Ng as the “客人”.

54.  For the reasons and the instances I set out above in which I find Ng’s evidence unsatisfactory, I find that Ng was not at all a credible or reliable witness. I will prefer D’s evidence over his whenever they conflict.

55.  As said and for completeness, I specifically reject Ng’s version and find for D’s version as to what happened at the ATT Office particularly that Ng had said to D at the ATT Office to the effect that if a bank staff asked D why he was withdrawing such a large amount, D should tell the staff that it was for the purchase of real property. Thus, I further find that Ng knew that there existed an arrangement that D would immediately go to a nearby bank to cash the said cheque after D had left the ATT Office.

No breach of section 7(1)(b) of the MLO

56.  Section 7(1)(b) of the MLO provides:

“(1) No person shall carry on business as a money lender –

(a) …

(b) at any place other than the premises specified in such licence; or

(c) …”

57.  D’s case that P has breached this section is based on the fact that the Loan was negotiated not in P’s office, which D never attended, and the Loan Agreement and the other documents were signed in the ATT Office. D in his closing submissions did not cite any authority to argue this breach or to dispute P’s submissions.

58.  Mr Chau cited Hao Tian Finance Co Ltd v Hung Yuk Ming & Another ([2020] HKCFI 465, Ng J at §§119-124) and submitted that as a substantial part of the preparation work for the application and approval of the Loan were conducted in P’s office, even though D did not attend P’s office or the Loan Agreement was not signed there, P has not contravened the section.

59.  It is here not disputed by D that Ng indeed received the application for the Loan (from Demon), conducted his assessment of the viability of the Loan and recommended its approval in P’s office. I so find. I also respectfully agree with Ng J’s analysis and conclusion in Hao Tian Finance Co Ltd at §§119-124. I thus find that P has not breached section 7(1)(b).

Clear breach of section 18(1) and (2)(a), (g), (h) and (j) of the MLO

60.  Section 18 of the MLO provides :

“18. Form of agreement

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

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

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

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

(2) The note or memorandum shall contain all the terms of the agreement and in particular shall set out—

(a) the name and address of the money lender;

(b) the name and address of the borrower;

(c) the name and address of the surety, if any;

(d) the amount of the principal of the loan in words and figures;

(e) the date of the making of the agreement;

(f) the date of the making of the loan;

(g) the terms of repayment of the loan;

(h) the form of security for the loan, if any;

(i) the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2; and (Amended 69 of 1988 s. 15)

(j) a declaration as to the place of negotiation and completion of the agreement for the loan.

(3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable. (Amended 69 of 1988 s. 15)”

61.  Initially, P accepted that there was a breach of section 18. Later in the course of trial, P changed its stance and relied on the Offer Letter as the note or memorandum required by section 18.

62.  The Offer Letter clearly did not contain :

(a)  The address of P, in breach of section 18(2)(a);

(b)  The terms of repayment of the Loan (in that it only stated the “Repayment period: 12 months” and “Monthly Repayment: HKD37,500.00”), in breach of section 18(2)(g);

(c)  The form of security of the Loan (in that the 2^nd Mortgage, or any mortgage of the Property, was not stated), in breach of section 18(2)(h); and

(d)  A declaration as to the place of negotiation and completion of the Loan Agreement, in breach of section 18(2)(j).

63.  P clearly had breach section 18. I so find.

Clear breach of section 27(3) and (4) of the MLO

64.  Section 27(3) and (4) provides:

“27. Charges for expenses etc. not recoverable

(3) Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof. (Amended 69 of 1988 s. 23)

(4) If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.”

65.  Whether there was a breach of section 27 was the issue the parties hotly disputed. It is common ground that its resolution depends on whether Kam, Chu, Demon and/or F&M was/were “persons acting in collusion with” P within the meaning of section 27.

66.  The legal principles regarding what amounts to “collusion” for the purpose of section 27 of the MLO are now settled and clear. A number of cases were cited to me by Mr Yuen, counsel for D, which were not disputed by Mr Chau. I need only refer to the following.

67.  In Skyline Credit Limited v Leung Hing Chung [2019] HKCFI 169, Deputy High Court William Wong SC summarized them at §§36 to 39:

“Legal Principles in relation to Collusion

36. As in the case of conspiracy, one seldom has direct evidence of collusion. What the court needs to be satisfied is that, from the evidence, the parties were acting in concert and playing the same game. The court is entitled to rely on overt acts of the parties involved and established facts to draw inferences in order to make a finding of collusion.

37. In HKSAR v Wong Kwok Wai (2013) HKCFAR 191, Tang PJ at §11 said:

‘11. I agree. On such a charge, the question to ask and answer is whether the persons who are said to have acted in collusion were playing the same game. It should not be made more complicated.’

38. Bokhary NPJ at §§6-8 said:

‘6. The conviction was based on two irresistible inferences: firstly, that all the persons and companies who dealt with the borrower were acting in concert and, secondly, that the applicant was colluding with a money lender in the making of the demand for $3,600.

7. It was open to the Magistrate to conclude, as he in effect did, that the demand was part of a dishonest and surreptitious enterprise which was meant to – and did – extract money from the borrower.

8. The points of law said on the applicant’s behalf to arise go to the meaning of collusion. No such point really arises. It is plain in the circumstances that the applicant and the moneylender were acting in concert and surreptitiously in a dishonest enterprise to extract money from a victim. Whatever else may or may not be within the meaning of ‘collusion’ under s.29(10), the applicant and the moneylender’s conduct certainly is fairly and squarely within that meaning.’

39. In Famous Zone Electronics Ltd v Hongkong and Shanghai Banking Corp Ltd [1998] 3 HKC 723, Sakhrani J. at 727F-G said:

‘It is plain that collusion as used in O 17 does not necessarily connote anything sinister on the part of the applicant. In Mureietta v South American etc Co Ltd (1893) 62 LJQB 396 it was held that collusion in the sense in which it is used in the Order does not necessarily involve anything morally wrong. As Wills J said at 397:

Colluding may be said to be an equivalent for playing the same game.’

68.  In Ever-Long Finance Ltd v Yeung Wah Leung [2017] 1 HKLRD 500, Deputy District Judge Simon Ho observed at §90, which was approved by the Court of Appeal in Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong :

“90. Coming back to the guiding test of “playing the same game” as expressed by Tang PJ in Wong Kwok Wai to decide whether the person concerned has acted in collusion with the money lender against the aforesaid statutory backdrop, such person would appear to be one who identifies its interests with the money lender’s rather than the borrower’s. In my view, to qualify as the collusion under s.27(3) and (4), it would be sufficient for such person and the money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice. I take this to be the essence of the term “collusion” as appeared in s.27(3) and (4) to meet with the statutory intent and purpose, and in accordance with the test of “playing the same game” as expressed by Tang PJ in Wong Kwok Wai.”

69.  The collusion may take place in many forms and manners, as explained by Deputy District Judge C To in Gain Wealth Global Credit Investment Ltd v Lam Hau Kay [2019] 1 HKC 1:

“70. In my view, the cooperation may take many forms. The lender and the entities in collusion may act together or separately. They may act simultaneously, or in disjunctive temporal periods. They may act complementarily or supplementarily. They may appear to act independently, but if the arrangement including their roles and conduct taken as a whole is to facilitate the imposition of a charge or the receipt of a sum in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan, such conduct should also be caught by the Ordinance.”

70.  In Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831, Kwan VP (giving the judgment of the CA) held at §35 and §49 that for section 27(3) and (4) to be engaged, it is not necessary to show that the money lender was somehow involved in the fraud and that “collusion” is a wider concept than “conspiracy”, thus:

“35. … For these provisions to be engaged, it is not necessary to find that the money lender was somehow involved in the fraud pertaining to these payments. Whatever the object of the plaintiff’s collusion might be as regards the defrauded monies is irrelevant.”

“49. … As rightly stated in Ever-Long Finance Ltd v Yeung Wah Lung at §§90 to 93, “collusion” in the context of sections 27(3) and (4) is a wider concept than “conspiracy”; there was no need to establish a prior agreement between the lender and the intermediary to extract payment from the borrower in a fraudulent way, it would be sufficient for the lender and the intermediary to co-operate with each other to do or abstain from doing something with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice.”

71.  In Credit One Finance Limited v Leong Wun Heng [2023] 3 HKLRD 136, Lisa Wong J considered and applied the above propositions expounded in Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong which the learned judge summarized at §76 thus :

“ … as confirmed by the Court of Appeal in Gain Wealth, it is unnecessary to show any conspiracy (between the moneylender and the intermediary) to extract payment from the borrower. There is also no need to show that the moneylender was involved in or even had knowledge of the fraud practised by the intermediary. …”

72.  With those principles in mind, I recap the salient evidence and findings, as follows. All the soliciting and negotiation of the Loan was conducted by the intermediary Demon who introduced and referred the loan application and sent D’s documents to P, and Demon had been liaising with Ng concerning it, including Demon making the telephone call to Ng (see §53 above). Demon met D at the Sheung Wan MTR station under the arrangement with D by Chu, who was the person coaxing D with the deception of the “銀監處貸款壓力測試”. Demon brought D to the ATT Office to meet Ng who was already waiting the room. In this connection, I find, as it is the only and irresistible inference, that Ng’s presence at the ATT Office to conclude the Loan with D and the prior preparation of all the documents to be signed by D must have been a result of prior liaison between Ng and Demon. Ng called Chu at the ATT Office for Chu to talk to D. Ng knew that D would be cashing the cheque at a nearby bank shortly after D has left the ATT Office and Ng told D to use the excuse of purchasing real property as the reason for withdrawing a large amount of cash in case a bank staff might ask D.

73.  In my judgment, there is thus abundant evidence here to conclude that the arrangement between F&M/Chu/Demon and P including their roles, communications and conducts taken as a whole amounted to playing the same game “for or in connection with or preliminary to procuring, negotiating or obtaining [the Loan] or guaranteeing or securing the repayment thereof”.

74.  Mr Chau made a number of contentions on behalf of P, which with respect, only need to be stated to be rejected. He said that D’s case was that the “intermediary” was F&M while P’s evidence was that the intermediary was “Wui Hin” or Demon; that the only evidence connecting P with F&M was the alleged telephone call from Ng to Chu made in the room at the ATT Office, which I should find against; that P has processed and approved the Loan properly; and that there is no evidence as to how and from whom Demon was remunerated. As said, I either reject these contentions based on the facts I found above, or reject them as being irrelevant to the consideration as to whether there was collusion.

75.  Regarding the remuneration to Demon for referring the Loan to P, as mentioned, despite having been pressed several times in cross-examination as to from whom Demon or the company/person employing him might be able to earn/obtain the money to pay for the remuneration, Ng could not come up with any answer or even suggestion. In my view, it is abundantly clear that the entity/person that would earn anything from the Loan transaction to pay for the remuneration were the fraudsters and/or P. I so find.

76.  I thus find that P has clearly colluded with Demon/Chu/F&M within the meaning of section 27 of the MLO.

Consequences of breaches of section 18 and section 27

77.  As I find that D had paid F&M/Chu in cash HK$1,500,000[16] and F&M/Chu had received it purportedly as “consultant fees” as stated in F&M’s invoice (when in fact, the sum was obtained from D through the deception aforementioned) and as persons acting for or in collusion with P in connection with the Loan, I find that section 27(3) of the MLO is engaged and was contravened, making the receipt by F&M/Chu unlawful.

78.  Under section 27(4), the sum may be set off against the amount actually lent and that amount shall be deemed to be reduced accordingly. As the principal of the Loan was the same in amount as the sum paid by D to F&M/Chu (ie. HK$1,500,000), the Loan would thereby be completely off-set and reduced to HK$0.

79.  Section 18(1) of the MLO provides that the consequence of its contravention is that the loan agreement and the security provided shall be unenforceable. Section 18(3) provides that if the Court “is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court consider equitable”.

80.  Both parties have referred me to the cases on the exercise of the discretion, including Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529, Treasure Spot Finance Co Ltd v Li Chik Ming (HCA 5387/2001, unrep., 3 December 2007), and Fast Billion Holdings Ltd v Sun Pui Yuk [2019] 2 HKLRD 906. These cases held, among others, that the discretion given by section 18(3) is extremely wide and empowers it to look at all the circumstances in a particular case in arriving at an equitable result between the money lender and the borrower.

81.  In view of the fact that the entire Loan is set off, the discussion on the exercise of the discretion under section 18(1) would be rather academic.

82.  The tenor of P’s case and Ng’s evidence was that P could be, and allegedly was, completely indifferent to what the intermediary or F&M/Chu/Demon might or might not have represented to D in order to solicit the loan transaction, whether they be proper or fraudulent. And P has been presenting a case that it had “kept a distance” from the conducts of the intermediary and had not colluded, which I found against without any hesitation. As I found that Ng knew that D would be going to a bank nearby to cash the cheque immediately (or shortly) after D left the ATT Office and he was giving D the excuse to ensure that D could obtain the cash smoothly without incident, I am prepared to infer that Ng at least had an inkling that D might be about to be scammed. Such being the case, I am not treating this breach of section 18 merely as a singular technical breach, as P would have me do, but I would view it in the wider perspective of the present facts that P colluded with the intermediary thereby facilitating and enabling the intermediary to perpetrate a fraud on D.

83.  As held by Chan PJ in Strong Offer Investment Ltd at §18:

“18. Section 18 offers one of the key protections to uneducated, ignorant and unsophisticated borrowers who may not be aware of all the terms and conditions under which the loans are made to them. It seeks to impose certain requirements the compliance with which is a pre-requisite to the enforcement of the loan agreement against the borrower. … These conditions are imposed to ensure that a borrower is fully aware of and freely agrees to all the terms and conditions of the loan, and in particular knows exactly how much money he has borrowed and what interest he has to pay.” (my emphasis)

84.  Usually, the breach of section 18 involves failing to disclose certain specific term or terms accurately or at all, which thereby prejudiced the unsophisticated borrower in that he was not made fully aware of that term. But in the less usual situation as in the present, a memorandum in compliance of section 18 might very well heighten D’s awareness that the loan transaction he was coaxed and about to enter into could be a real loan transaction as opposed to one being “just for show” for the purpose of“銀監處貸款壓力測試”. In my mind, protection to the unsophisticated borrower against deception such as that perpetrated in the present case would surely be intended to be one of the key protections afforded by section 18. On the present facts, I hold that P’s breach has deprived D of such opportunity to be made aware, to his great prejudice. I also find that P’s laxity and failure in compliance, whether it be intended or not, provided the fraudsters room to succeed in their scheme.

85.  Therefore, and just to be entirely clear, in my judgment it would be inequitable to allow P to enforce the Loan Agreement and the 2^nd Mortgage even to the extent of obtaining any interest payment or other benefit from D, who did not at all have any use of the Loan amount.

86.  Thus, apart from the reason that the entire Loan would be set off as aforesaid, considering the matters expressed above and in all the circumstances, I would not exercise the discretion in P’s favour to enforce the Loan Agreement or the 2^nd Mortgage to any extent.

Other breaches of the MLO put forth by D

87.  My conclusions reached in the last section are sufficient to dispose of P’s claim and D’s Counterclaim. For completeness, I will also deal with the remaining allegations of breach of the MLO, albeit very briefly.

88.  P did not seriously contest that section 21 of the MLO was contravened by the provision at the bottom of the Offer Letter that D was liable to pay an early redemption fee of HK$150,000 if he repaid the Loan before the 6^th instalment became due. I find that section 21 was thus breached.

89.  D’s case is that section 22 of the MLO was also breached in that the Third Schedule to the 2^nd Mortgage provides:

“The following terms and conditions apply to any instalment loan (“the Loan”) granted by the Lender to the Borrower under the terms of the Facility Letter, as amended from time to time. …

Interest : The Lender may at its discretion raise or reduce the interest rate payable on the Loan, by serving notice in writing on the Borrower stating the increased or reduced rate of interest and such change in interest rate shall take effect on the date stated in the notice. The lender shall be entitled to increase or reduce the amount and/or the number of the instalments to take account of any such increase or reduction in the interest rate. …”

90.  “Facility Letter” is defined in the 2^nd Mortgage as “the letter or letters from the Lender to the Borrower which from time to time govern the Facilities, as amended or varied from time to time”.

91.  By referring to amendments or variations of the terms of the Facility Letter from time to time, the terms of the 2^nd Mortgage were such as to cater for a loan structure in which its flexibility was part of the parties’ agreement, which was not at all a feature of the Loan. Be that as it may, I accept Mr Chau’s submission that nonetheless the clause did not provide for payment of compound interest, or prohibit the repayment of the loan by instalment or provide for the rate or amount of interest being increased by reason of any default; and hence the 2^nd Mortgage did not breach section 22. I so find.

92.  D’s case that section 24 of the MLO was breached is based on the premise that the defrauded amount should be deducted from the principal as the amount actually lent for the purpose of calculating the effective rate of interest. If so, the principal would be reduced to HK$0, and the interest charged would necessarily exceed the rate allowed by section 24.

93.  However, the defrauded sum could be so deducted from the principal if it is established that it was received by the intermediary as agent on behalf of the money lender, and a finding that the receiving intermediary was acting in collusion with the money lender per se is insufficient (Skyline Credit Ltd V. Leung Hing Chung [2022] 4 HKLRD 561, §48, per Chu JA (as the VP then was) giving the judgment of the CA). On the evidence before me, there is insufficient evidence, and I do not find, that F&M/Chu/Demon received the HK$1,500,000 as agent on behalf of P. I therefore conclude that section 24 was not breached.

94.  D said that this transaction was extortionate as it grossly contravened ordinary principles of fair-dealing, and thus liable to be re-opened under section 25 of the MLO.

95.  D contended that the facts of the presence case are materially comparable with Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong (HCA 77/2016, unrep., 21 December 2018, Deputy High Court Judge Sherrington), in that an uneducated elderly (a lady in that case) was deceived into taking out a loan beyond her financial need or ability to repay and a substantial sum of the loan amount in that case (while the entire amount in this case) was deceptively obtained from her by the one acting in collusion with the money lender. There, the learned Judge held that section 25 was engaged, thus :

“90. It is clear to me that the plaintiff and Mr Chan and Mr Cheung were playing the same game; their roles were inextricably linked and designed to burden the defendant with a debt she could not afford to service and to do so at a very considerable cost to her and conversely at a very considerable advantage to the plaintiff.

91. Having concluded that there was collusion between the plaintiff and Mr Chan and Mr Cheung, I have to consider the effect of this on the transaction between the parties.

92. I am satisfied on the evidence that the defendant has been the victim of unscrupulous lending practices. It is wholly unacceptable that a person of low income and poor education should be taken advantage of to the extent that this defendant has been, such that from servicing a debt of under $200,000, she was, less than a year later facing a debt of $1,000,000 payable after only 12 months it having cost her $640,500 to be put into this position. It is inconceivable to me, even ignoring the payments to the agents involved here how the plaintiff in this case, knowing that the defendant had an existing debt of $700,000 and an income of only around $10,000 a month could reasonably have proposed her taking a loan of $1,000,000 with interest payments of $25,000 per month with the whole loan being repayable after 12 months. This to my mind of itself manifestly contravenes ordinary principles of fair dealing, such as to bring the transaction squarely within the scope of section 25 MLO.”

96.  This part of the judgment of the learned Judge was not appealed against by the plaintiff in that case, save the amount the borrower should repaid upon the transaction being re-opened (which was allowed on appeal).

97.  I accept Mr Yuen’s submission that the relevant facts here bear material resemblance with the facts in that case, including that D was aged and uneducated which was taken advantage of, D was asked to sign something under deception and which he did not understand, D was retired and had a meagre income and could not afford the interest payment which was a fact P knew, there was collusion between P and the intermediary, and D was deceived by the intermediary. I accept Mr Yuen’s submission, and find, that considering these and all the other circumstances, the whole transaction here grossly contravenes ordinary principles of fair dealing and the transaction could and should be re-opened under section 25.

98.  Upon re-opening the transaction and giving regard to all the circumstances so as to do justice between the parties, I arrive at the same result as above that the whole loan amount of HK$1,500,000 be set off and the Loan Agreement and the 2^nd Mortgage be unenforceable.

Disposal

99.  In the premises, I dismiss P’s claim and allow D’s Counterclaim for (1) a declaration that the Loan Agreement and the 2^nd Mortgage are unenforceable at law, and (2) an order that the registration of the 2^nd Mortgage by memorial number 15112700700022 against the Property be forthwith vacated from the Land Registry.

100.  There be a costs order nisi that P do pay D the costs of this action, including the costs of the Counterclaim and all costs reserved, to be taxed if not agreed. This costs order nisi will become absolute within 14 days unless any party applies to vary within that time.

101.  I thank Mr Chau and Mr Yuen for their assistance.