CHEN SIMON GUOMIN v. CHAN CHOI HAR IVY AND OTHERS

CACV 8 /2024, [2025] HKCA 730

On appeal from [2023] HKCFI 3135

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 8 OF 2024

(ON APPEAL FROM HCA NO 1454 OF 2018)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is an appeal by the 3^rd and 4^th defendants (“D3” and “D4”; collectively “Ds”) against the judgment (“Judgment”) of Deputy High Court Judge M K Liu handed down on 8 December 2023^[1] after a trial which lasted for two days in November and December 2023. For ease of reference, the terms and expressions in the Judgment will be adopted.

2.  The action was brought by the plaintiff (“P”) against five defendants to enforce a loan agreement dated 30 April 2013 (“Loan Agreement”) as amended by a supplemental loan agreement dated 16 May 2014 (“Supplemental Loan Agreement”) and three guarantees (“Guarantees”). The Loan Agreement as amended by the Supplemental Loan Agreement is referred to as “LA”.  P was the lender, the 1^st and 2^nd defendants (“D1” and “D2”) were the borrowers.  D3, D4 and the 5^th defendant (“D5”) each provided a Guarantee of the borrowers’ liability to P.  P obtained default judgment against D2 and her son D5 on 2 December 2020.

3.  D1 is the wife of D3.  A bankruptcy order was made against her on 15 August 2022 and P has elected not to proceed against her in the trial.  D4 is the son of D1 and D3.  Both D3 and D4 are solicitors in Hong Kong.  They were the only defendants at the trial in late 2023.  They had legal representation (with D1) until they filed a notice to act in person on 30 December 2021.  They appeared in person at the trial.  On appeal, they are represented by counsel, Mr Jeff Yau.

4.  By the Judgment, the judge held D3 and D4 jointly and severally liable to pay P the outstanding principal being the actual amount advanced to D1 and D2 in respect of 28 loans under the LA in the total sums of HK$14,530,079.36 and RMB 17,040,000, with interest on each loan at the rate of 36% per annum until 30 April 2015 and from 1 May 2015 at the prime rate plus 1% until the date of the Judgment, and thereafter at the judgment rate until payment.  Costs were awarded to P with a certificate for two counsel.

5.  D3 and D4, acting by counsel (not Mr Yau), filed a notice of appeal dated 5 January 2024 to set aside the Judgment and for dismissal of P’s claim against them, with grounds of appeal running to six pages.  On 12 November 2024, they filed a supplementary notice of appeal (“SNOA”) settled by Mr Yau of six pages.

6.  The main theme in the SNOA is that D3 and D4 were unrepresented and did not have a fair trial.  Not only did the judge fail to give them explanation, advice, assistance and guidance on procedural and substantive aspects of the case, the judge was said to have put undue and impermissible pressure on them, causing them to abandon their main defence that the LA and Guarantees were sham arrangements and no money was in fact advanced to D1 and D2 (the “Sham Defence”).  D3 and D4 were confined to their defences that the LA and the Guarantees are unenforceable pursuant to sections 22(2)^[2], 23^[3] and 25(3)^[4] of the Money Lenders Ordinance, Cap 163 (“MLO”) (the “MLO Defences”).  Further, the judge denied them of their right to cross-examine P.  In his submissions, Mr Yau seeks in the alternative that the case be remitted to another judge for re-trial.

7.  Mr Yau said that the allegations against the judge are not a form of personal attack, as they related only to the judge’s misconduct of the trial.  Whether they amounted to personal attack or not, it behoves us to consider whether there are good grounds and proper basis for the allegations, as they cast aspersions on the judge’s handling of the trial and are serious on any view.

8.  Before considering the grounds of appeal in detail, the background matters relevant to this appeal may be stated as follows.

Background

9.  P, formerly a Mainland resident, relocated to live and work in Hong Kong in 1997.  This was after he had obtained degrees in economics and business administration in two universities in Vancouver, Canada and had worked for three years in investment banking in Vancouver.  On settling in Hong Kong, he worked in HSBC for six years; the last position he held was the director, China and the director and head of consumer and retail banking of HSBC.  He then joined Lehman Brothers Asia Limited as a senior vice president from 2005 to 2006.  After that, he was a private investor, investing mainly in real estate and bonds.

10.  D1 was a business woman in Hong Kong and she had through the years been carrying on the business of dealing with real estate in Hong Kong and elsewhere.  She had many business interests, one of them was a company listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited.  This company was then known as China AU Group Holdings Limited (“China AU”).  D2 was also a substantial shareholder.  In early 2011, D1 was an executive director and vice chairwoman of China AU; D2 was its chief executive officer.

11.  D3 was admitted as a solicitor in Hong Kong in 1990.  Since then, he had been involved from time to time in various companies, including serving as the executive director, independent non-executive director and legal counsel for companies listed in Hong Kong.  From 2003 until 2020, he was also a consultant in a solicitors’ firm.  Since then, he has ceased to be in private practice.

12.  D4 was admitted as a solicitor in Hong Kong in 2011.  At the time of his witness statement in 2020, he was associated with a firm of solicitors.  He did not hold a practising certificate at the time of the trial in 2023.

13.  The loans were advanced to D1 and D2 in the circumstances as summarised by the judge and regarded as part of P’s undisputed case.  On appeal, it is the contention of D3 and D4 that they should not be held to their concession (for reasons to be gone into) when they informed the judge they would not dispute P’s factual case.  The relevant part of P’s case is as follows:

“9. Before P left Vancouver to work in Hong Kong, he got to know D2 (who was a friend of P’s younger sister at that time) and her son D5 in Vancouver in around 1997. At that time P’s younger sister was pregnant and D2 took care of P’s younger sister by providing accommodation for her and buying food for the new born baby from time to time. P was extremely grateful to D2 for the assistance she had rendered to P’s younger sister.

10. In around the first quarter of 2011, P met D2 again at a lunch meeting in Hong Kong. During the said lunch meeting, D2 told P that she and D5 were occupying important positions in China AU Group Holdings Limited (‘China AU’), a listed company in Hong Kong. P also got to know D1 in the said lunch meeting and was given to understand that D1 and D2 were major shareholders of China AU.

11. Subsequently, P met D1 & D2 on several occasions. At their request, P had made available to D1 and D2 certain loan facilities to give them some financial assistance. P lent several sums of money to D1 and D2 out of his friendship and trust of D1 and D2 and the loans were made to assist them. At the time when the loans were advanced by P to D1 and D2, they were free of interest and without security.

12. When D1 and D2 requested for a loan in 2012, they assured P that this was to be only a short term loan and that the loan would be fully repaid by 30 November 2012. Hence, at that time the parties only signed a deed of guarantee dated 12 November 2012 providing for the maturity date of the loan to be on or before 30 November 2012. However, D1 and D2 failed to repay the loan by that time. They requested P to advance more loans to them. Based on his friendship with D1 and D2 and in order to assist them, P acceded to their request.

13. As the amounts of the loans gradually increased and as the loans became more frequent, the parties agreed to sign a loan agreement (‘the Loan Agreement’) to record all the loans advanced by P to D1 and D2. Since D3 was a practising solicitor in Hong Kong and was familiar with the law, the parties agreed that he would be responsible for drafting the Loan Agreement. The Loan Agreement and the relating guarantees (‘the Guarantees’) were all drafted by D3.

14. Eventually, the Loan Agreement dated 30 April 2013 was signed by P as the lender, D1 and D2 as the borrowers, and D3 to D5 as guarantors. Under the Loan Agreement, the parties expressly acknowledged the loan amounts advanced by P to D1 and D2 as at 30 April 2013. By the time of the Loan Agreement, the total number of loans provided by P to D1 and D2 was 21. In fact, 20 loans had already been provided by P to D1 and D2 before the date of the Loan Agreement. Only the last loan was provided by P to D1 and D2 on the date of the Loan Agreement. According to the terms of the Loan Agreement, all the principals and interests stipulated therein would need to be repaid on 29 April 2014.

15. The Guarantees dated 30 April 2013 were also executed by each of D3, D4 and D5. By the Guarantees, each of D3, D4 and D5 agreed, in consideration of P entering into the Loan Agreement and agreeing to make the facilities available to D1 and D2, to unconditionally and irrevocably guarantee the due and punctual repayment or payment of all moneys which may from time to time be due and owing by D1 and D2 under the Loan Agreement.

16. On 16 May 2014, the parties (ie P as lender, D1 and D2 as borrowers, and D3 to D5 as guarantors) entered into a supplemental loan agreement (‘the Supplemental Loan Agreement’), which was also drafted by D3. The amounts of loans provided by P to D1 and D2 as at 29 April 2014 are set out in the Supplemental Loan Agreement. By the time of the Supplemental Loan Agreement, the total number of loans provided by P to D1 and D2 was 28. By the Supplemental Loan Agreement, the repayment date of all the principals and interests has been extended to 30 April 2015. …

20. D1 and/or D2 have made some repayments to P (‘the Repayments’), the total of which is HKD130,000.00.  Save and except the Repayments, no other sum has been repaid by D1 and/or D2 to P.  P is prepared to give corresponding credits to D3 and D4 as a result of the Repayments.”

14.  P brought this action against the five defendants in 2018 and filed a statement of claim on 23 July 2018.

15.  D1, D3 and D4, then represented by solicitors, filed a joint defence on 15 October 2018, and each signed a statement of truth as required stating their belief in the truth of the facts stated in their defence.  The main defence, pleaded in §6 is the Sham Defence, namely, that the LA and the Guarantees were documents used to bolster P’s financial credibility, so that P would be able to obtain financing from financial institutions in Mainland China for development of a project on a piece of land in the Mainland, and in fact no money was advanced by P to D1 and/or D2 under the Loan Agreement or the Supplemental Loan Agreement.  Their alternative defence is the MLO Defences, which is §13 and reads as follows:

“If, which is denied, there was a purported loan under the Loan Agreement and/or Supplemental Loan Agreement, any such loan is not recoverable and/or illegal being contrary to the provisions under the Money Lenders Ordinance (Cap 163) in that the Plaintiff was not a licensed money lender, the Loan Agreement and the Supplemental Loan Agreement are illegal, and/or the alleged interest rates are excessive.”

16.  On 8 March 2019, the plaintiff made a request for further and better particulars of §13 of the defence and the defendants provided answers by their solicitors on 22 March 2019.  The requests and answers read as follows:

“1. Identify the provisions of the Money Lenders Ordinance (Cap 163) which the loan is said to be contrary to, and in each case give full particulars of the facts and matters relied upon in support of the plea that the loan is contrary to such provision.”

“1.1 The 1^st, 3^rd and 4^th Defendants refer to Sections 2, 22 to 25 of the Money Lenders Ordinance (Cap 163) (the ‘MLO’), details of which are set out hereinbelow.”

“2. Give full particulars of the facts and matters relied upon in support of the plea that the plaintiff is a money lender.”

“2.1 Section 2 of MLO defines ‘money lender’ as ‘every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business’.

2.2 Section 23 of MLO further provides that a money lender who is not licensed, is not entitled to recover any money, interest thereof, or enforce any agreement made or security taken in respect of any loan made by him.

2.3 According to the Plaintiff’s case in his Statement of Claim, the Plaintiff purportedly loaned sums of RMB¥18,933,33.33 [sic]^[5] and HK$16,144,532.64 to the 1^st and 2^nd Defendants under the Loan Agreement and Supplemental Loan Agreement.

2.4 As far as the 1^st, 3^rd and 4^th Defendants are aware, the Plaintiff did not have a money lender’s license.

2.5  In the premises, given that the Plaintiff had no money lender’s licence, any purported loans made by the Plaintiff are not recoverable.”

“3. Give full particulars of the facts and matters relied upon in support of the plea that the Loan Agreement and the Supplemental Loan Agreement are illegal.”

“3.1 Section 22(1)(b) of MLO renders illegal any loan agreement which provides directly or indirectly for the prohibition of repayment of the loan by instalments.

3.2  Clauses 4.1 and 4.2 of the Loan Agreement provide that repayment of the purported loan must be made in full on the maturity date, while all payments made by the 1^st and 2^nd Defendants before the loan is fully repaid are regarded as payment of interest.  Such an arrangement indirectly prohibits the repayment of the loan by instalments, and if indeed there was such an arrangement, this would be illegal under Section 22(1)(b) of MLO.”

“4. Give particulars of the facts and matters relied upon in support of the plea that the interest rates are excessive.”

“4.1 Section 24(2) of MLO provides that no agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in Section 24(1), i.e. 60 per cent per annum.

4.2 Section 25(2) of MLO further provides that a transaction is extortionate if it requires the debtor to make payment (whether unconditionally or on certain contingencies) which are grossly exorbitant. Under Section 25(3), any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall be presumed to be extortionate.

4.3  It is unclear from the Plaintiff’s pleaded case how the alleged interest is calculated, as an alternative, the 1^st, 3^rd and 4^th Defendants will rely on these provisions of MLO to say that the interest rates charged by the Plaintiff for the purported loans under the Loan Agreement and Supplemental Loan Agreement are excessive.”

The trial

17.  The trial was set down for six days.  It took only two days because of what transpired on the first day on 27 November 2023. The second day, which was on 4 December 2023, was for the judge to hear further oral submissions after the parties had served written closing submissions in advance.  The trial was conducted in English as that was the preferred language of D3 and D4.

18.  The morning session of the first day was taken up largely with the opening submissions^[6] of P’s counsel, Mr Lawrence Ng (with Mr Victor Lui; they appeared for P throughout).  In the course of this, the judge expressed his concern of the lack of pleading in the reply to the defence of D1, 3 and 4 (“Reply”) if the court was asked to exercise its discretion to enforce the loan agreements notwithstanding non-compliance with some of the provisions in the MLO.  This led to Mr Ng seeking to provide draft amendments to his pleading after the lunch break.  Before the court adjourned for lunch, the judge had a discussion with D3 and D4 and asked them to consider carefully their position regarding the Sham Defence.  The judge asked them to set out their position on paper and let him know in the afternoon.

19.  The parties returned to court after about two hours.  D3 and D4 handed up a typed document they signed to the judge, which read as follows:

“The following is the position of D3 (Law Kin Ming Alfred) and D4 (Law Arthur Ho Yan) in relation to HCA 1454/2018.

D3 and D4 do not put forward the defence in respect of the matters pleaded in:

-  paragraph 6 of the defence of the 1^st, 3^rd and 4^th defendants which is referred to in paragraph 19(1) of the Plaintiff’s opening submission (i.e. documents to bolster financial credibility); and

-  paragraph 6(3) of the defence of the 1^st, 3^rd and 4^th defendants which is referred to in paragraph 19(2) of the Plaintiff’s opening submission (i.e. no money at any time advanced to D1 and D2).”

20.  D3 and D4 confirmed to the judge that the only defence they would pursue was the MLO Defences.

21.  The judge then dealt with Mr Ng’s application to amend the Reply.  In gist, the amendments pleaded that if and insofar as necessary, P would rely on the court’s discretion in sections 22(2), the proviso to section 23 and section 25(3) (including the factors set out in sections 25(5) and (6)).  For the particulars in support of the exercise of discretion, P repeated the statement of claim and the amended reply in their entirety, to accord with Mr Ng’s representation to the judge there would be no new matters arising from the amendments, no new witness statement and no new document^[7]. After hearing D4, who indicated that he and D3 had no objection, the judge gave leave to amend the Reply.

22.  Next, the judge discussed with the parties whether the trial could be conducted without hearing evidence from the witnesses.  D3 and D4 informed the court they would not give oral evidence but they wished to cross-examine P regarding the carrying on of the business of a money lender.  After exchanges with the parties and hearing submissions from both sides, having confirmed with Ds they were not disputing P’s factual case, and that Mr Ng was prepared to argue the case without any oral evidence from any witness, the judge ruled that oral evidence was not necessary and he would not allow Ds to cross-examine P for the purpose of seeing whether P was a money lender.

23.  Considering that Ds did not serve any opening submissions, the judge gave directions for the parties to file two rounds of closing submissions and adjourned the trial to 4 December 2023.  Ds served theirs on 29 November 2023 (5 pages) and 1 December 2023 (11 pages), citing 11 authorities in all.

The Judgment

24.  The judge proceeded on the basis that Ds had abandoned their primary case (the Sham Defence), they would not dispute P’s factual case and would only rely on the defences under the MLO as pleaded (and particularised in their answer to the request for particulars), namely, section 23 (that P was not a licensed money lender), section 22(1)(b) (that clauses 4.1 and 4.2 of the Loan Agreement prohibited repayment of the loans by instalments) and sections 24 and 25 (that the interest rates provided in the LA are excessive).

25.  The judge noted the burden of proving that P was a money lender at the material times was on Ds and it is impermissible for them to shift the burden to P.  He held that Ds have not pleaded any material facts in the defence and in the further and better particulars in support of the allegation that P was a money lender at the material times.  Ds have also not adduced any evidence to prove that P was a money lender at the material times. Based upon the undisputed facts, the loans were provided by P to D1 and D2 out of friendship and trust, and were provided to them upon their request to give them assistance.  He held that Ds have failed to plead the relevant material facts, and have also failed to prove, that P was a money lender at the material times.  Accordingly, MLO s.23 is not applicable.

26.  On the alternative case of P, that even if P were a money lender at the material times, taking all the circumstances into account, the judge would exercise the discretion conferred upon him by the proviso to section 23 in favour of P and enforce the LA and the Guarantees, for the detailed reasons set out in §37 of the Judgment.

27.  Having ruled that Ds have failed to establish that P was a money lender at the material times, section 22(1)(b) is not applicable.  Alternatively, the judge took the view that Clauses 4.1 and 4.2 of the Loan Agreement do not contravene section 22(1)(b).  In the further alternative, if section 22(1)(b) had been contravened, for the reasons set out in §37 of the Judgment, he would exercise his discretion in section 22(2) in P’s favour and enforce the LA and the Guarantees.

28.  There is no dispute that in respect of each and every loan as recorded in the agreements, the interest rate is less than 60% per annum.  Thus, there is no contravention of section 24(1) of the MLO.  As to section 25(3), the “effective rate of interest” refers to the interest rate charged before the borrower defaults on repayment and does not cover the interest rate in a scenario of default.  As for the 10% loan fee in clause 3.2 of the Loan Agreement, Mr Ng informed the judge that P would not claim the 10% loan fee.  That being the case, the judge held that the interest rate on each loan as shown in the agreements until the repayment date of 30 April 2015 was 36% and hence section 25 is not applicable.

29.  The judge declined to deal with matters raised in Ds’ closing submissions which have not been pleaded^[8].

The grounds of appeal

30.  Mr Yau has organised the various grounds of appeal in the notice of appeal and SNOA under these grounds of appeal as follows:

Ground 1

31.  The judge erred by failing and/or refusing to consider whether the LA and the Guarantees were shams. (SNOA §2)

Ground 2

32.  The judge failed to address whether P was an unlicensed money lender and the MLO Defences by:

(i)    disallowing D3 and D4 from running the defences on the ground that they failed to plead material facts; (Ground 2(a); SNOA §5)

(ii)   failing to explain to Ds the implications of not disputing “the factual case of P”; (Ground 2(b); SNOA §3)

(iii)  failing to permit D3 and D4 to cross-examine P; (Ground 2(c); SNOA §4) and

(iv)  failing to consider or address various key factors in determining whether P is a money lender under section 23. (Ground 2(d); notice of appeal §§ 7 to 10)

33.  Had the judge not made the above errors, he ought to have held that P failed to establish his rights to enforce the Guarantees by virtue of sections 7, 22 to 25. (notice of appeal §16)

Ground 3

34.  Insofar as P relies on section 23 to circumvent section 25 by abandoning clauses 3.2 and 3.3 of the Loan Agreement, the judge erred in:

(i)  allowing P to amend the Reply at trial to introduce reliance on the discretion in the proviso to section 23; (Ground 3(a); SNOA §6(i)) and

(ii) failing to take these clauses into account in assessing whether the transaction was extortionate (Ground 3(b); SNOA §§6(ii) to (iv) and notice of appeal §15).

35.  Before we turn to consider the grounds of appeal as set out above, it is appropriate to make these observations, in view of the serious allegations against the judge for his conduct of the trial.

36.  Mr Yau placed heavy reliance on various dicta in a number of cases where the appeal court or tribunal commented on how a trial judge should approach a trial with self-represented litigants.  He submitted that these comments are instructive for present purpose:

(1) When faced with a litigant in person, a measure of judicial intervention is necessary to ensure a fair hearing.  The advice and assistance which a litigant in person should receive from the court should be limited to “that which is necessary to diminish, so far as this is possible, the advantage which he or she will ordinarily suffer when faced by a lawyer, and to prevent destruction from the traps which our adversary procedure offers to the unwary and untutored.”  The duty of the judge “is not to advise the unrepresented party how to conduct that party’s case but to ensure that the party is fully aware of the legal position in relation to the procedural and substantive aspects of the case, thereby putting the party in a position to make effective choices.”^[9]

(2) Where a self-represented litigant seeks to concede or abandon a central and important point during the course of a hearing, the court “must take the greatest of care to ensure … that is precisely what the individual wishes to do, that they understand the significance of what is being said, that there is clarity about it, … that they understand some of the consequences that may flow.”  As a matter of principle, a concession or withdrawal cannot properly be accepted as such unless it is “clear, unequivocal and unambiguous”^[10].

(3) Where a trial judge improperly intervened so much in the trial that a party was not able properly to put his case^[11]; or brought improper or undue pressure to bear upon a party to settle by appearing to have made up his mind finally by hearing the evidence, or by some threat or unjustifiable warning as to consequences in costs^[12]; or placed unreasonable pressure on a party to change his position by making an entirely gratuitous statement he would probably send his findings to the police and require it to go to the prosecution authority^[13], the appeal court would consider this “misconduct of the trial” and may order a re-trial in setting aside the judgment.

37.  We think it is pertinent to bear in mind that each case necessarily turns on its own facts and circumstances^[14].  Each case represents a wholly different set of circumstances which require careful attention so as to preserve the rights of all parties^[15].  We do not think there can be a hard and fast rule, there must be variations and exceptions to any general rule.  Self-represented litigants will differ in their ability to understand the issues and procedural aspects of the trial.  The trial judge would need to assess the particular needs of the unrepresented party and his ability to grasp the relevant concepts^[16].  A good illustration is Segor v Goodrich Actuation Systems Ltd, the concession which the claimant’s lay representative made resulting in the eventual dismissal of her claim by the Employment Tribunal gave rise to an ambiguity whether she was abandoning the “technical claim” but not the “factual claim”^[17].

38.  Last but not least, it is important to have regard to the context in which various dicta relied on by Mr Yau were made.  Segor is an “unusual” case^[18], and there is no suggestion on his part that any of the other cases he cited bore any resemblance to the present situation.

39.  Mr Ng emphasised the fact that Ds were legally represented until December 2021.  This period included the time when pleadings and particulars were filed and witness statements and supplemental statements were prepared and exchanged.  Ds were highly experienced solicitors.  D3 had been qualified for 33 years at the time of trial and had served as legal counsel for listed companies.  D4 was qualified for 12 years at the time of trial.  We agree with Mr Ng that they should possess knowledge of the law and legal procedures.  They should have no difficulty in understanding their case as pleaded on their behalf.  Having read their two closing submissions to the judge when acting in person, we have no difficulty in regarding these submissions as professionally prepared.  Ds are not typical litigants acting in person.  They cannot be regarded as “unwary and untutored”.

Ground 1: abandonment of the Sham Defence

40.  We turn to the circumstances in which Ds handed up a document to the judge abandoning the Sham Defence on the first day of trial.

41.  As mentioned, the judge raised the Sham Defence with Ds before the lunch adjournment.  This is what he said:

“So Mr Law, while you are on your feet I want you to consider one matter and, of course, it will also apply to Mr Law senior. Now, putting aside the Money Lenders Ordinance it seems that the factual basis now being put forward by – by both Mr Law senior and Mr Law is that the loan – the loan agreement is a sham, it’s not true. It is – it is some assistance provided by – by the defendants to – to the plaintiff to – to bolster his financial position to the authorities in Mainland. Now, I want the defendants to carefully consider this position. I’m not saying that the – the defendants should do this or should do that, but the defendants have to consider this position carefully.

This is a – this is a – I mean, a – a factual matter proposed by the defendants. Now, if at the end the court will say that, I think, that what the defendants have said is true that would mean that there is a conspiracy to try to mislead the authorities in the Mainland. And bearing in mind both Mr Law senior and Mr Law yourself are solicitors in Hong Kong, would this have any impact on you, on both of you? I think you have to consider this.

On the other hand if the court says that this factual suggestion is not true, now, that would mean that both Mr Law senior and Mr Law that the court has rejected your evidence, your evidence under oath is not true. Then that will have – I think you will understand that would also have consequence. Now, whether both Mr Law and Mr Law senior would insist to put forward this factual allegation in this trial, I think this is a matter which Mr Law senior and Mr Law have to consider carefully. Do you understand, Mr Law, Mr Law senior?”^[19]

42.  These exchanges with D3 then followed:

“D3: I think our position is that because as the guarantor all these allegations is beyond us. I think our case is signing of the guarantee and the loan agreement, you know, even with our signatures, is purely on the hearsay evidence from the 1^st defendant.

Court: No, no, no, no. Mr Law senior, now, all the points printed in your defence, in the FBP, you may put forward those points, but one of the matters being put forward by the defendants is that the – the loan agreement, in a nutshell, is a sham, is – it is not true. I am asking both of you are you really putting forward this allegation in this trial.

D3: That is not our position.

Court: Sorry?

D3: There is no way for us to – to put forward that allegation.

Court: All right. Mr Law senior, you – you consider this yourself and have some discussion with your son and tell me what is your position after the lunch break.

D3: Okay.

Court: All right. Now – because your position may affect, in fact, which evidence will be necessary in the trial. If you are not running that – you – if you are not putting forward that – that factual allegation then, perhaps, we – some time may – can be saved because some evidence may – may not be necessary. Now, say, for example, if you are not putting forward that allegation, whether Madam Chan [D1] would need to be a witness, you – you have to – to consider this.

D3: I think the complication lies in the joint defence, you know, in whether certain …

Court: No, no, sorry, Mr Law senior, if you and your son now adopt a position which is different from the one set out in – in the – current defence then – then you – you and your son, Mr Law, you – both of you should let me know and let Mr Ng know. Perhaps, you may put down your current position on a piece of paper so – so that there would be no misunderstanding of your current position. And this piece of paper should be given -- a copy of that paper should be given to Mr Ng because …

D3: My Lord, in case we indicate that our position is not to present this allegation, then would putting the 1^st defendant into the box jeopardise our position because she may give contrary evidence.

Court: Mister – Mr Law – Mr Law senior, you – you are a solicitor, I think, for many years. You would know that when a party puts forward a witness the party will be bound by the evidence given by that witness …

D3: Okay.

Court: … because the party will be saying that, ‘All the evidence given by my witness is true.’ Although, both Mr Law senior and Mr Law are acting in person, but both of you are professionals. You – you …

D3: In that case, we will – we will advise the court in the afternoon.

Court: You – you are lawyers, so I really want to know what case you will want to run in the trial, and – and I hope that you – you can carefully consider the matter. Now, of course, this case – of course, it is unfortunate that yourself being parties in this case, but try to think how to handle this case which would be in your best interests. I have already explained if you want the sham defence, perhaps, either way will have consequence. So you think about your position and – and put it on a piece of paper. All right?

D3: Good.”^[20]

43.  After mentioning a dispute about the authenticity of some documents, the judge asked the parties if anything needed to be dealt with before the lunch adjournment.  Mr Ng, D3 and D4 all told the judge there was nothing else.  The judge adjourned at 12:35 pm and resumed at 2:46 pm when Ds handed him the document they prepared stating that they would not put forward the Sham Defence.

44.  The terms of the document prepared by Ds are clear.  They made known their position clearly, unequivocally and unambiguously that they would not put forward the defence that the purpose of the documents in relation to the loans was to bolster the financial credibility of P and that no money had been advanced by P to D1 and D2 at any time.  Mr Yau did not argue to the contrary.

45.  What he submitted was that the judge had “unjustifiably” put “undue pressure” on Ds such that their decision to abandon the Sham Defence “could not have been properly and freely made”.  His argument was along these lines:

(1) The judge’s warning that if the Sham Defence was accepted to be true, Ds would be involved in a “conspiracy to try to mislead the authorities in the Mainland” is unjustified.  He had no factual or evidential basis to make that warning of his own motion, as whether there would be a conspiracy is a matter of PRC law to which none of the parties had directed their minds.  Besides, the pleaded defence is that the sham arrangements were entered into for the purpose of showing them to “financial institutions” in China to bolster P’s financial ability, not “the authorities in the Mainland” as the judge had stated.

(2) The judge warned Ds that if the factual allegation in the Sham Defence was rejected by the court as not true this would have consequence on them as solicitors in Hong Kong.  This warning is disproportionate, because evidence in support of the factual allegation would be given by D1, not by D3 and D4, and it would not be a situation in which the court has rejected Ds’ evidence under oath.   

(3) In stating that “either way will have consequence”, the judge placed Ds in a difficult dilemma of choosing between abandoning the Sham Defence or placing themselves under the risk of the serious and personal consequences as mentioned by the judge, with emphasis on their professional standing.

(4) The judge acted contrary to his duties in that he did not give explanation, advice, assistance and guidance to Ds.  He failed to inform them of the implications of abandoning the Sham Defence, and thus Ds did not have the proper opportunity to make effective choices.

46.  Mr Yau contended that the judge was wrong to treat Ds as practising solicitors and to assume that they had knowledge and familiarity with court procedures when there was no basis for this assumption. He submitted that Ds were “out of practice” at the time of the trial, that D3 was apparently a “transactional lawyer”, and the fact that Ds were once solicitors does not justify affording them less protection than other litigants. Besides, when the parties are themselves lawyers, they are unable dispassionately to assess and present their case in the same manner with the benefit of legal representation.

47.  We have no hesitation in disagreeing with counsel that the judge had unjustifiably put any undue pressure on Ds to abandon the Sham Defence.

48.  If Ds had genuinely found themselves under some form of pressure to abandon this defence, it was not due to the judge’s making. What the judge did was to point out to them the pitfalls of running this defence, that had been advanced jointly with D1, in case they did not appreciate or fully appreciate that they ought to consider their interests separately from D1 (against whom P had chosen not to proceed after she was made bankrupt), in light of their professional status.  This was within the judge’s discretion to do so.  There is nothing improper for the judge to put across to Ds where this defence might possibly lead them, leaving the decision whether to run it entirely in their own hands.  It is simply a matter of common sense rather than any question of Mainland law.  The parties all knew what the judge was referring to by “the authorities in the Mainland”, as Mr Ng had mentioned the relevant allegation in the defence and the purpose of showing the sham documents to “financial institutions”^[21], not long before the judge engaged Ds in the discussion.  

49.  It is telling how D3 responded to this when the judge pointed out the possible consequences to him of running this defence, bearing in mind Ds’ professional status as solicitors in Hong Kong.  His first response was that the Sham Defence was not his position as those allegations were beyond Ds, there was no way for Ds to put forward those allegations, Ds were merely passive participants in signing the Guarantees, and it was D1 who was behind those allegations.  D3 later said “the complication lies in the joint defence”.  The judge rightly reminded him that when a party put forward a witness, the party will be bound by the evidence given by the witness, because the party will be saying that all the evidence given by his witness is true (not to mention that D3 and D4 had signed a statement of truth in the defence stating their belief in the truth of the facts stated).  He then asked D3 to consider carefully whether to adopt a different position after discussing with D4 and to try to handle the case in a manner which would be in their best interests.  He had mentioned earlier that he was not suggesting to Ds to take any specific action.  Ds were given the lunch break of around two hours to consider their position.  The judge was courteous and patient to Ds throughout.

50.  On an objective assessment of the transcript, the judge’s handling of the situation is exemplary and completely proper.  We reject entirely the suggestion that Ds did not have proper opportunity to make effective choices.  It could hardly be suggested that they were not aware that the Sham Defence was a central and important part of their pleaded defence.  It is apparent from his exchanges with the court that D3 was fully cognizant of the implications of running this defence, he even attempted at one stage to lessen Ds’ role in putting forward this defence.  The “warning” of the judge, if it should be regarded as warning of some sort instead of an advice and reminder, is not unjustified or disproportionate.  There is no substance in the contention that Ds were “out of practice” solicitors and it cannot be assumed they had the knowledge and familiarity with court procedures.  It is contrary to common sense to suppose that experienced solicitors of over 30 and 10 years’ standing would not have some basic understanding of the procedural and substantive aspects of their case, and this is simply not borne out from the exchanges Ds had with the court in the trial and the submissions they wrote.

51.  Mr Ng submitted that the serious allegations against the judge were mere afterthoughts.  These complaints were only raised in the SNOA, filed nearly one year after the Judgment and more than ten months after the notice of appeal was settled by Ds’ former counsel.  We are inclined to think there may be a grain of truth in this.

52.  It is not necessary for us to consider Mr Ng’s submission that in any event there is no utility to allow Ds to revive the Sham Defence as it was raised without any proper foundation.

53.  Ground 1 is wholly without merit.

Ground 2(a): disallowing Ds to run the defence of unlicensed money lender for failing to plead material facts

54.  Mr Yau submitted that the judge erred in holding that Ds have not pleaded any material facts in the defence and the further and better particulars in support of the allegation that P was a money lender at the material times, and had the judge not made this error he would have allowed Ds to cross-examine P.  He contended that Ds’ pleading is sufficient.  He pointed to this averment in §2.3 of the particulars: “According to the Plaintiff’s case in his Statement of Claim, the Plaintiff purportedly loaned sums of RMB¥18,933,33.33 [sic] and HK$16,144,532.64 to the 1^st and 2^nd Defendants under the Loan Agreement and Supplemental Loan Agreement.”  As such, the emphasis of a lack of averment of P’s actual business is misplaced, citing authorities for the proposition that the number of transactions made by the lender is not the determining factor as even one transaction may be sufficient if there is evidence to show that the lender was a money lender^[22].

55.  Mr Yau prayed in aid a pleading precedent in Bullen & Leake & Jacob’s Hong Kong Precedents of Pleadings (3^rd ed) at 8-E28 in respect of a defence on the ground that the plaintiff was not a licensed money lender, which consists of only an averment in these terms: “The Plaintiff is a money lender for the purpose of the Money Lenders Ordinance (Cap 163).  At the date of making of the Agreement, the Plaintiff was not a holder of a licence under the said Ordinance.”

56.  He argued further that even if particulars in respect of P’s business were necessary, the judge ought to have given Ds a proper opportunity to amend their defence to plead material facts, as this was said by D4 in answer to the judge’s question what was the basis for saying that P was a money lender at the material time:

“D4: That in carrying out the business of a money lender we look at, one, sort of, the background, or at least from the case law it’s a question of fact and – and, basically, in the authorities usually we see situations which we distinguish here where in authorities it might be a close relationship or – or a family relationship where there’s a loan arrangement and then there’s less frequency of loans. And we kind of want to distinguish those authorities from the case because – because there is 28 different advances of loans which go into not only directly the defendant 1 and defendant 2, but all these different individuals in Hong Kong and PRC. And so we are trying to go through all the different circumstances to, sort of, demonstrate that based on what is presented already in the facts that – that he’s carrying on a money lender’s business.”^[23]

57.  Mr Yau also referred to D3’s witness statement he was told by D1 that P “had relied on a number of similar loan agreements with different parties based on these same specific transactions, including [D1], in order to boost his financial standing on paper.”  As P had responded to this in his supplemental witness statement, no prejudice would have been caused to P.

58.  We reject all the above contentions.

59.  We agree with the judge that Ds have not pleaded material facts in the defence or the further and better particulars to support the allegation that P was, at the material times, a money lender within section 2 of the MLO.  We do not find any doubt or difficulty in this instance in drawing a line between material fact and evidence (which Ds are not required to plead).  That P purportedly loaned sums of RMB 18,933,333.33 and HK$16,144,532.64 to D1 and D2 under the Loan Agreement and Supplemental Loan Agreement is plainly insufficient to provide support for the allegation that P’s “business (whether or not he carries on any other business) is that of making loans”.  It is wholly unclear from that statement what is the basis for alleging that P was a money lender other than the fact that he had purportedly made the loans to D1 and D2.  We agree with Mr Ng that the defence precedent in Bullen & Leake only provides a bare-shell template and is not sufficient.

60.  Mr Ng rightly pointed out that the judge did not bar Ds from pursuing the defence that P was an unlicensed money lender.  What the judge did was to disallow cross-examination of P.  As no material facts in support of this allegation have been pleaded and the burden of proving this allegation is on Ds, it would not be right to permit Ds to cross-examine P to conduct a roving inquiry and fish for evidence to support an allegation which has not been particularised.

61.  As for the judge not giving Ds an opportunity to amend their pleading to plead those matters that Ds might have relied on as indicated by D4 to support their allegation, this is of no consequence.  As quoted earlier, D4 made a statement to the court how Ds intended to show that P was carrying on a money lender’s business in the course of the discussion if they should be allowed to cross-examine P.  The judge pointed out to him the schedule to the Supplemental Loan Agreement showing the 28 loan transactions and if Ds were saying that would show P was carrying on business as a money lender, they could just rely on the schedule.  They appeared content with that and did rely on those matters in their closing submissions.

62.  As to what was said in D3’s witness statement, this is wholly irrelevant.  What D1 had allegedly told D3 was plainly said in the context that the loans were sham arrangements, and does not advance Ds’ allegation that P was a money lender.

Ground 2(b): failing to explain to Ds the implications of not disputing “the factual case of P”

63.  The complaint was that the judge had misjudged whether P’s factual case was undisputed by asking Ds to confirm they would not dispute P’s factual case without (i) explaining what he meant by P’s “factual case”; and/or (ii) considering and ascertaining if it was the true intentions of Ds not to dispute P’s factual case in light of the circumstances; and/or (iii) giving any or any proper explanation of what Ds’ not disputing P’s factual case would entail.  Because of this misjudgment, this led the judge to rely on P’s undisputed factual case (set out in §§9 to 16 of the Judgment as quoted earlier) to reject the MLO Defences.

64.  The exchanges with the parties on whether P’s factual case would be disputed took place in the afternoon session.  After Ds handed up their signed document to the judge, he confirmed with them they would abandon the Sham Defence.  Then came these exchanges:

“Court: … Now Mr Law, it seems that – it seems that in that case you – you would not dispute the factual case of the plaintiff.

D4: Yes, my Lord.

Court: All right. So my – my understanding is that only defences relied upon by you would be those defences under the Money Lenders Ordinance.

D4: Yes, my Lord.”^[24]

65.  Mr Yau made the point that although D4 had said he was not disputing the factual case of the plaintiff, that was for the purpose of the Sham Defence which Ds had abandoned, and not for the purpose of the MLO Defences which they maintained.  It does not appear to us there was any confusion or ambiguity in that regard, as the judge had further exchanges with Ds with regard to the MLO Defences and what specific part of P’s factual case they might be disputing.

66.  The judge raised with the parties his idea that the case might be conducted without hearing evidence from the witnesses “because the factual case of the plaintiff is not disputed” in that Ds “are only relying upon the defence under the [MLO]” and so “those points can be taken care of by submissions”^[25]. Mr Ng expressed tentative agreement with the judge but wished to take instructions from P whether he would adduce oral evidence from P.  The judge went on to seek the views of Ds if they would dispute the factual case of P.

67.  D4 had detailed exchanges with the judge.  He asked the judge if Ds could cross-examine P on his background whether P was engaged in the money lender business.  The judge made the observation that P had set out his background in two witness statements and it did not appear that Ds^[26] had a positive case as to which part of P’s background as stated in his statements was not true or not correct.  D4 appeared to agree with this observation.

68.  Next D4 asked if Ds would be able to cross-examine P, as P was arguing that the loans were made on the basis of friendship and trust and Ds wanted to examine some of the points about how the terms were decided, especially the interest rates.  D4 stated there were matters they were unsure about and wished to clarify the basis of the addition of fee rates.  The judge asked D4 to state the factual matters upon which D4 was relying to support the allegation that P was a money lender at the material time.  In response came the long statement D4 made to the court quoted earlier on the matters he intended to rely upon to demonstrate that P was carrying on a money lender’s business.  As mentioned, the judge told D4 if he was relying on the fact there were many transactions, they were set out in the schedule to the Supplemental Loan Agreement and Ds could rely on that document.  D4 also told the court that Ds would not give evidence.

69.  The judge then heard submissions from Mr Ng, who emphasised that Ds had abandoned their main defence (the Sham Defence) and their alternative case (the MLO Defences) was vague and unparticularised, and not covered by the witness statements of D3 and D4.  The burden of proving that P was a money lender was on Ds.  In all the witness statements served by Ds, including D1’s statement, they had not adduced evidence to show that P was engaged in a money lending business.  Mr Ng referred to §37.1 of P’s supplemental witness statement, in which P responded to the MLO Defences in the defence and further and better particulars and stated that he did not carry on a money lending business, he also repeated his first witness statement at §8 that the loans he provided was based on his friendship and trust of D1 and D2. Mr Ng pointed out that this part of P’s supplemental witness statement was not challenged in D1’s supplemental witness statement^[27] and D3’s^[28] supplemental witness statement filed in response.  He took the position that since Ds “are not now disputing the factual case of the plaintiff’s there’s no reason to allow the defendants to cross-examine the plaintiff”^[29].

70.  The judge took a short adjournment to allow Mr Ng to take instructions whether to proceed without calling any oral evidence and for Ds to consider any point they wished to reply to Mr Ng’s submission, after which he would make a ruling whether to allow cross-examination.  He resumed after a break of about ten minutes.  Mr Ng then informed the court having taken instructions and on the basis that D3 and D4 “are not disputing the factual basis of the plaintiff’s claim”, P would not testify.  The judge then asked D4 if he was not disputing P’s factual case, to which D4 answered yes.  The judge then ruled as Ds had not adduced any evidence to show a prima facie case P was a money lender, he would not allow cross-examination as that would be a fishing exercise but Ds could make submissions to argue the money lenders point^[30].

71.  From the above exchanges, it seems to us fairly clear that even though the judge did not state expressly what he meant by P’s “factual case”, Ds should have a sufficiently clear idea what this would encompass.  This is hardly a case of factual complexity.  P’s factual case would clearly cover §37.1 of P’s supplemental witness statement specifically mentioned by Mr Ng as unchallenged in Ds’ witness statements.  Nor do we accept the contention that Ds could not have truly intended not to dispute P’s factual case on the MLO Defences.  The final confirmation given by D4 that he would not dispute P’s factual case came after lengthy exchanges with the judge in which D4 raised more than a few times the areas he would wish to explore with P in cross-examination to support the allegation that P was a money lender.  We have no reason to think that D4 did not give a considered answer or that Ds were ignorant of the implications of not disputing P’s factual case.  Ds’ confirmation could not be regarded as unclear, equivocal or ambiguous.

72.  We reject Mr Yau’s contention that the judge had failed to discharge or properly discharge his duty in any way.

73.  The judge was entitled to attach weight to the undisputed facts that the loans were provided by P to D1 and D2 out of friendship and trust, and the loans were provided to them upon their request to give them assistance^[31].

74.  This ground of appeal fails.

Ground 2(c): failing to permit Ds to cross-examine P

75.  Mr Yau emphasised the importance of cross-examination.  He submitted that the greatest latitude should be given to Ds as self-represented litigants and Ds had made clear their intention to cross-examine P.  The judge was wrong to deprive them of this opportunity by insisting they must adduce evidence to show a prima facie case for their allegation that P was a money lender at the time (Ground 2(a)) and wrongly treating Ds as not disputing P’s factual case (Ground 2(b)).  As Ds have identified the scope of their intended cross-examination, this exercise could not be characterised as “fishing”.

76.  We propose to deal with this ground succinctly as we have covered the circumstances in which the judge made his ruling to disallow cross-examination of P and we have already rejected Grounds 2(a) and (b).

77.  It is a case management decision of the judge not to allow cross-examination in these circumstances and that the parties should deal with the issues arising from the MLO Defences by submissions.  There is no basis to interfere with the judge’s exercise of discretion in his case management powers.  It has not been shown that he has misunderstood the law or the evidence or that the exercise of his discretion is plainly wrong.

78.  We reject Ground 2(c).

Ground 2(d): failing to consider or address key factors in determining whether P was a money lender

79.  Mr Yau submitted that the judge failed to identify and consider key factors pointing to P being a money lender such as: the substantial amount of the loans (over HK$35 million); the loans were made over the span of several years, with varying maturity dates, thus showing habitual lending; the loans involved HK dollars and Renminbi, attracting interest of 3% per month, and an arrangement fee of 10% of the loan which may double to 20% with additional 0.5% monthly interest in the event of default; the loans were detailed, structured and legalistic; and P worked in the banking industry for years and held senior positions and was a private investor at trial.

80.  Most of these matters were mentioned by the judge in the Judgment at §§15 to 19 as part of P’s undisputed case.  Others are inferences drawn by Mr Yau, which may or may not be the proper inferences.  Ds also relied on some of those matters in their written closing submissions.

81.  There is no justification to say that the judge did not consider them.  The more important consideration is that if these matters are key factors pointing to P being a money lender, they are material facts in support of this allegation and should have been pleaded.  The judge took this up with D3 on the second day of the trial when D3 made oral closing submissions.  The judge pointed out to D3 the need to plead material facts showing that P was a money lender at the material times but no material facts had been pleaded.  In the absence of pleading, those matters would not be covered at the discovery stage, and P would not have been given notice that Ds would be relying on those factual allegations to say he was a money lender.  D3 submitted he was just pointing out what was already in the factual evidence.  On further questioning from the judge, he acknowledged that he could not refer to a specific pleading on the material facts.  The judge reminded him that issues are defined by pleadings, not by the evidence^[32].

82.  The judge dealt with this in the Judgment at §32 that Ds have not pleaded any material facts in the defence and the further and better particulars on the allegation that P was a money lender at the material times.  He went on to say that being the case, even if there is any fact which may lend support to Ds’ case, it would not be fair to allow Ds to rely upon that matter, “for the matter is unpleaded and therefore has not been canvassed at the discovery stage, and P has not been given an opportunity to adduce evidence to deal with that matter.”

83.  There is no error in the judge’s approach.  Ground 2(d) is rejected.

Ground 3: misapplication of the discretion in relation to section 23 of MLO

84.  This ground is concerned solely with the judge’s exercise of discretion under the proviso to section 23, in the event that P was held to be an unlicensed money lender.  As we have rejected all the grounds under Ground 2, the exercise of the discretion under the proviso to section 23 would not be engaged and Ground 3 does not arise.  We do not propose to deal with Grounds 3(a) and (b).

Conclusion

85.  We dismiss the appeal of D3 and D4.  There is no dispute that costs should follow the event.  We order Ds to pay P the costs of this appeal.