PARAGON MORTGAGE LTD v. CHEUNG WAI PING

DCCJ 1716/2017

[2018] HKDC 988

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1716 OF 2017

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DECISION

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Introduction

1.  The dispute arises from a loan (the “Loan”) of HK$900,000 extended by the plaintiff, a licensed money lender, to the defendant.  The Loan was made pursuant to a Loan Agreement (the “Loan Agreement”) dated 25 January 2017, and was secured by a Third Legal Charge dated 25 January 2017 (the “Third Legal Charge”) over a property known as Flat 6, 9^th Floor, Block A, Chun Man Court, 66 Chung Hau Street, Kowloon (the “Property”) of which the defendant was and continues to be the sole registered owner.

2.  Under the Loan Agreement, the Loan is repayable in 12 months and carries interest at 24% per annum.

3.  On 10 April 2017, the plaintiff issued the Writ of Summons herein, claiming that the defendant had defaulted on the repayment of the Loan since 25 February 2017, ie the day on which the first monthly instalment became due pursuant to the Loan Agreement.  The defendant filed his Defence on 10 May 2017.

The summonses

4.  Before me there are 2 summonses for disposal.  First, by summons dated 28 December 2017 (“D’s Summons”), the defendant applies for the following orders:-

(1)  To extend the deadline for taking out interlocutory applications;

(2)  To vacate the hearings on 16 January 2018 and 26 January 2018;

(3)  To stay this action until the plaintiff is able to prove that the address stated on the application documents relating to its money lender license is accurate (“如原告未能完全證明在申請放債人牌照之有關文件正確無誤（主要是登記地址的有關租約業權證明）前，將本案無限期押後”).

5.  By another summons dated 17 November 2017 and amended on 2 May 2018 (the “Strike Out Summons”), the plaintiff seeks the following substantive orders:-

(1)  The Defence be struck out;

(2)  Judgment be entered in favour of the plaintiff for repayment of the Loan plus interest;

(3)  Delivery of vacant possession of the Property to the plaintiff pursuant to the Third Legal Charge.

D’s Summons

6.  It is convenient to deal with D’s Summons first.

7.  By the time D’s Summons came before me on 25 May 2018, the dates of the 2 hearings which the defendant sought to vacate had passed.  The defendant agrees that there is no need to further pursue this part of D’s Summons.

8.  As for the extension of the deadline for taking out interlocutory applications and the stay application, these will only become relevant if I should dismiss the Strike Out Summons. Obviously, if I accede to the Strike Out Summons and give final judgment to the plaintiff as sought, the orders sought by the defendant are meaningless.

9.  This conveniently leads onto an analysis of the Strike Out Summons.

The relevant legal principles concerning striking out

10.  Order 18 rule 19 of the Rules of the District Court (Cap 336H) provides:-

“(1) The Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading or the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that—

(a) it discloses no reasonable cause of action or defence, as the case may be; or

(b) it is scandalous, frivolous or vexatious; or

(c) it may prejudice, embarrass or delay the fair trial of the action; or

(d) it is otherwise an abuse of the process of the Court,

and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

(2) No evidence shall be admissible on an application under paragraph (1)(a)…”

11.  In the present case, the plaintiff relies on O 18 r 19(1)(a), (b) and (d) RDC.  In my view, for the disposal of the Strike Out Summons, it is sufficient to only consider O 18 r 19(1)(b) RDC.

12.  The “frivolous or vexatious” limb encompasses proceedings which are incapable of reasoned argument, without foundation or where they cannot possibly succeed: White Book 2018,Vol 1, §18/19/7.  I have also reminded myself that the power to strike out should only be exercised in plain and obvious cases.  Disputed facts must be taken in favour of the party sought to be struck out.  The defence must be unarguably bad and it must be impossible, not just improbable, for it to succeed before it may be struck out: White Book 2018 §18/19/4.

Strike Out Summons – Analysis

13.  The defendant relies on 2 grounds of defence in his Defence:-

(1)  Since the Loan Agreement was executed at the offices Messrs. T Y Lam & Co (solicitors acting for the plaintiff) rather than the registered office of the plaintiff, the defendant contends that this constitutes a breach of s.7(1)(b) of the Money Lenders Ordinance (Cap 163, the “MLO”) and it renders the Loan Agreement unenforceable;

(2)  The defendant claims that he was the victim of a fraud perpetrated by a third party, one Mr David Chan acting on behalf of Anson Enterprise Service Limited (“Anson Enterprise”, 安盛企業服務有限公司), as part of an arrangement pursuant to which the defendant paid HK$868,000 to Anson Enterprise as his proof of assets in order to obtain a low-interest loan.  The Loan was taken out by the defendant in order to make this payment to Anson Enterprise.  Anson Enterprise and David Chan have since disappeared.

14.  In my judgment, neither of these grounds are capable of reasoned argument. 

15.  Section 7 MLO provides that:-

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

(a) without a licence;

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

(c) otherwise than in accordance with the conditions of a licence.

(2) A licence shall be in the prescribed form.”

16.  I do not see how s 7 MLO would assist the defendant.  First, I am not convinced that on a proper construction, s 7(1)(b) MLO obliges a money lender and its agents to carry out the entirety of their commercial activities (e.g. advertising, meeting and negotiating with potential borrowers, signing the relevant documentation, passing over the borrowed sum etc.) within the premises specified in the licence.  What it prohibits are, in my view, the setting up and the carrying on of a money lending business at an unlicensed location.  It would be quite absurd if the employees of a money lender could only meet and negotiate with prospective borrowers (and sign relevant documentation) within the physical confines of the licensed premises of the money lender in question.  In fact, one can envisage many loan or security transactions to be negotiated and concluded in solicitors’ offices when documents are signed.  Indeed, nowadays loan transactions may even be concluded online without either the borrower or the money lender being physically together, let alone physically together at the very place specified in the licence.

17.  Furthermore, even if (as the defendant contends) the signing of the Loan Agreement outside the plaintiff’s licensed premises should constitute a breach of s 7(1)(b) MLO, that in itself does not render the Loan Agreement unenforceable.  The MLO does not stipulate any civil consequences in the event of a contravention of s 7; the only consequence provided for in the MLO is criminal liability under s 29(1).  In this regard, I note that there are other provisions within the MLO expressly rendering loans unenforceable in case of contraventions (ss 18, 22, and 23).  This would seem to me to strongly indicate that a contravention of s 7 (if established) has no impact on the enforceability of a loan.

18.  I should mention in passing that the defendant argues that the registered address of the plaintiff, being Unit 6B, 7/F, Chi Fu Centre, in fact does not exist (there is only a “Unit 6” without any “Unit 6B”), and this would somehow taint the enforceability of the Loan Agreement or the Third Legal Charge.  The plaintiff has explained that the entire “Unit 6” was rented to Mr Leung Chi Yan (a director of the plaintiff) and he divided it into several sub-units, with “Unit 6B” being designated as the plaintiff’s registered address.  The plaintiff also disclosed correspondences with the Police and Companies Registry who have been able to contact the plaintiff at “Unit 6B”.  I am satisfied with the plaintiff’s explanation.  In any event I cannot see how this issue may affect the enforceability of the Loan Agreement or the Third Legal Charge.

19.  As to the allegations of fraud, even on the defendant’s own case, it was Mr David Chan acting on behalf of Anson Enterprise and not the plaintiff who committed the alleged fraud.  At the hearing, I repeatedly clarified with the defendant whether he is alleging that the plaintiff was also involved in the fraud, to which the defendant consistently replied in the negative.

20.  Accordingly, even if the defendant was really a victim of fraud / fraudulent misrepresentation, he has no defence against the plaintiff on the Loan Agreement: see Shun On Finance Limited v Lau Lee Sung [2018] HKCFI 1441 at [26].  It is trite that in order to ground relief to a person who has entered into a contract as a result of a misrepresentation, the misrepresentation must have been made either by the other party to the contract, or by his agent acting within the scope of his authority, or the other party must have had notice of the misrepresentation: see Chitty on Contracts (Vol 1) 32^nd Edition §7-024.

Conclusion and disposition

21.  For reasons stated above, I am satisfied that the Defence is frivolous and cannot possibly succeed.  It ought to be struck out. 

22.  I further give judgment to the plaintiff that the defendant shall pay the principal sum of HK$900,000 plus contractual interest thereon at 24% per annum from 25 January 2017 until payment in full[1].

23.  As to the claim for vacant possession of the Property, since the defendant had failed to repay under the Loan Agreement, an event of default has occurred under Clause 5 of the Third Legal Charge and the plaintiff is entitled to take possession of the Property under Clause 6 thereof.  A mortgagee is entitled to possession “as of right”: Shun On Finance at [43].

24.  But the plaintiff’s right to possession under the Third Legal Charge is subject to the rights of the prior mortgagees, ie Phillip Securities (Hong Kong) Limited and Treasure Express International Mortgage Limited (the “First and Second Mortgagees”).  It is desirable for the plaintiff to notify them of these proceedings, and there is no evidence before me that this was done.  Nevertheless, the failure to give notice does not affect the lis between the plaintiff and the defendant: Shun On Finance at [47].  I therefore follow the approach in that case and make an order nisi for possession; this would allow the First and Second Mortgagees to take any action they deem necessary upon notice.

25.  I would therefore make an order for possession in the following terms:-

(1)  There be an order nisi for delivery of possession of the Property to the plaintiff subject to the rights of the First and Second Mortgagees (the “Order Nisi for Delivery”);

(2)  The plaintiff shall serve the Order Nisi for Delivery on the First and Second Mortgagees within 21 days;

(3)  The Order Nisi for Delivery shall become absolute in the absence of any application by either of the First and Second Mortgagees to be joined as a party to these proceedings within 42 days of the service of the Order Nisi for Delivery.

26.  I further dismiss D’s Summons since the orders sought are meaningless in light of my conclusions above.

27.  Finally, I make an order nisi that the costs of this action (including D’s Summons and the Strike Out Summons) be paid by the defendant to the plaintiff on an indemnity basis, as provided for under Clause 11 of the Loan Agreement and Clause 20(b) of the Third Legal Charge, to be taxed if not agreed.  This costs order shall become absolute in the absence of any application for variation within 14 days.

Postscript

28.  Although the defendant is acting in person, at the hearing I have confirmed with him that he reads and understands the English language and he is happy for this Decision to be written in English.  He may make an appointment with my clerk for interpreting this Decision to him in Chinese if he so wishes.