SUN HUNG KAI CREDIT LTD v. GUAN WENNA

DCCJ 2294/2021

[2025] HKDC 547

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2294 OF 2021

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JUDGMENT

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1.  This is the trial of the plaintiff’s action to enforce a loan agreement and a mortgage agreement against the defendant.

A.  Matters not in dispute

2.  The plaintiff is a licensed money lender.

3.  It is common ground that the parties entered into the loan agreement and the mortgage agreement in question.

4.  The loan agreement was signed by the defendant as borrower on 16 October 2020 at the plaintiff’s office. It provided that the plaintiff would grant a loan of HK$2 million to the defendant on condition that the defendant would execute a mortgage in respect of her property in Park Island, Ma Wan (“Property”) in favour of the plaintiff. It also provided for repayment of the loan and payment of interest and overdue interest.

5.  The mortgage agreement was signed by the defendant as mortgagor at the office of the plaintiff’s solicitors on 27 October 2020. Pursuant to this agreement, the Property is charged as security for the defendant’s repayment under the loan agreement and, in default, the plaintiff may enforce the mortgage by taking possession of the Property to sell it.

6.  On 27 October 2020, the plaintiff remitted HK$2 million to the defendant in pursuance of the agreements.

7.  No repayment was made by the defendant.

B.  The claim

8.  The plaintiff’s case is straightforward. In default of repayment, the defendant was in breach of the agreements. As at the date of the writ, the defendant was liable in the total sum of $2,107,271.43 with further interest accruing on a daily basis.

9.  The plaintiff is seeking a monetary judgment and an order for vacant possession of the Property against the defendant.

C.  The defence

10.  The defendant is a retired university professor. She claims to be a victim of fraud.

11.  According to her Defence and Counterclaim (“D&CC”):

(a)  On 24 September 2020, she was contacted by a male who identified himself as 劉志文 of 上海虹口區公安局 (“Lau”). Lau said that the defendant was implicated in a cross-border criminal fraud case and that orders had been issued to freeze her assets and to restrict her from traveling to the Mainland (“the fictitious orders”).

(b)  Lau said he believed the defendant to be innocent and offered to assist her. He instructed her (i) not to leave the Property and to report her whereabouts four times a day and (ii) to inject sufficient funds into a bank account to be opened to satisfy the fictitious orders so that the cross-border restriction might be lifted.

(c)  On 25 September 2020, a female who identified herself as 小韓 (“Han”) came to stay at the Property to supervise the defendant. Han confiscated the defendant’s SIM card and provided her with a replacement for communication with Lau and Han.

(d)  In pursuance of Lau’s instructions and under Han’s supervision, the defendant opened a bank account with the Bank of China (Hong Kong) Limited (“BOC Account”) on 25 September 2020. Between 25 September and 5 October 2020, the defendant injected HK$657,000 of her own funds into the BOC Account.

(e)  On 6 October 2020, Lau made the following representations to the defendant: (i) an additional HK$2 million was required to satisfy the fictitious orders; (ii) his superior（陳雲龍檢察長）had made arrangement with the plaintiff for a HK$2 million loan; (iii) she was required to contact one Ms Cheng of the plaintiff (“Cheng”) at the telephone number given to complete the paperwork for the loan; (iv) Han would accompany her to the plaintiff’s office to assist in the process; and (v) the PRC authorities would compensate her loss. These representations were collectively called “Lau’s Representations” in the D&CC.

(f)  In pursuance of Lau’s Representations, the defendant contacted Cheng and attended the plaintiff’s office on 10 and 16 October 2020 together with Han to apply for the loan.[1] In the course of the application, Cheng demanded and the defendant paid HK$300 “to accelerate the processing of the loan”.

(g)  The defendant received HK$2 million from the plaintiff after signing the agreements. She transferred the money to the BOC Account.

(h)  On 12 November 2020, Lau asked for a further HK$1 million to satisfy the fictitious orders. The defendant borrowed HK$974,800 from her siblings in mainland China and transferred the money to the BOC Account.

(i)  After the aforesaid transfers, Lau told the defendant that the fictitious orders had been satisfied and that Han would leave the Property. Han left the Property at about 2:35 pm.

(j)  After Han’s departure, the SIM card provided by Han stopped working at about 3 pm and the defendant made a report to the police. When the defendant checked the balance of the BOC Account at about 8:59 pm, only HK$5 was left in the account.

12.  It is the defendant’s case that the loan agreement and the mortgage agreement are “unenforceable due to illegality” (para 21 of the D&CC) as she entered into the same “under misrepresentation, duress and/or undue influence of Lau and Han” (paras 22 to 24 of the D&CC). She pleads that “the Plaintiff has actual and/or constructive notice of the aforementioned misrepresentations, duress and undue influence” (para 25 of the D&CC) and “conspired with Lau and Han to injure the Defendant” (para 26 of the D&CC).

13.  She counterclaims for a declaration that the loan agreement and the mortgage agreement are unenforceable on the ground of illegality or that the agreements were rescinded. She also counterclaims for damages in the sum of HK$3,631,800 being the total amounts defrauded[2] and interest.

D.  The trial

14.  At the trial, the plaintiff was represented by counsel Mr Vincent Chen (“Mr Chen”) and the defendant was represented by counsel Mr Lok Ho (“Mr Ho”).

D1.  Issues

15.  According to the Joint Statement of Issues in Dispute filed before trial, the issues that require adjudication are:

(1)  Whether the defendant was induced by misrepresentation, duress and/or undue influence to enter into the loan agreement and the mortgage agreement?

(2)  If so, whether the plaintiff had actual notice and/or constructive notice of the same?

(3)  Whether the loan agreement and the mortgage agreement are unenforceable due to illegality?

(4)  Whether the plaintiff conspired with Lau and Han to injure the defendant? Whether any amount owed by the defendant to the plaintiff should be set off against the defendant’s claim against the plaintiff for loss and damage arising from the alleged conspiracy? In particular:

(a)  Whether the loan agreement and the mortgage agreement were pre-arranged between Lau and the plaintiff?

(b)  Whether Lau and/or his accomplices had made prior arrangements with the plaintiff to approve the loan agreement and the mortgage agreement for the purpose of the fraud?

(5)  Whether the loan agreement and the mortgage agreement should be rescinded? In particular, whether they were entered into for the purpose of perpetuating and/or in furtherance of the illegal fraud practiced on the defendant and are tainted by illegality therefore unenforceable?

(6)  Whether the defendant is in breach of the loan agreement and the mortgage agreement?

(7)  If so, whether the defendant is liable to pay the plaintiff the outstanding sum as pleaded in the Statement of Claim or what is the appropriate amount of damages? Whether the defendant should deliver to the plaintiff vacant possession of the Property?

16.  In Mr Ho’s opening submissions, he informed the court that the defendant would abandon her claim for damages and the associated plea that the plaintiff was part of a conspiracy to defraud the defendant.[3] Agreed issue (4) therefore falls away.

17.  In his closing submissions, Mr Ho further:

(a)  conceded that the defendant would be in breach of the loan agreement and the mortgage agreement if those agreements were found to be enforceable against the defendant (ie agreed issue (6)); and

(b)  confirmed that the defendant would not dispute the plaintiff’s calculation (ie agreed issue (7)).[4]

18.  What remain to be decided are agreed issues (1), (2), (3) and (5).

D2.  Witnesses

19.  At the trial, the plaintiff called:

(a)  Mr Wong Tsz Man (“Wong”), the conveyancing clerk of the plaintiff’s solicitors who witnessed the signing of the mortgage agreement by the defendant at the office of the plaintiff’s solicitors on 27 October 2020; and

(b)  Mr Chan Man Sing (“Chan”), Head of the Sales Division of the plaintiff who supervised Cheng at the material time.

20.  Apart from commenting that:

(a)  Wong did not clearly remember the incident as he could not recall whether the defendant was accompanied by anyone when she attended the office of the plaintiff’s solicitors to sign the mortgage agreement; and

(b)  Chan was not personally involved in the transaction and his evidence was derived from his perusal of the documentary evidence,

Mr Ho did not seriously dispute their evidence. I accept their evidence.

21.  The defendant also testified. I shall discuss her evidence with reference to the issues below.

22.  Cheng did not testify. In his closing submissions, Mr Ho invited this court to draw an adverse inference against the plaintiff for not calling Cheng to give evidence, citing Chan Pui Sze and Mak Hau Yin (The Joint and Several Trustees of the Property of the Bankrupt) v Wang Jue [2024] HKCFI 2491.

23.  It is said in para 48 of Chan Pui Sze that the court may draw an adverse inference against a party who has, without explanation, failed to produce a witness who might reasonably be expected to give direct evidence on a matter in issue. In this case, there is evidence from Chan to explain Cheng’s absence.

24.  In para 30 of Chan’s witness statement, he explained that Cheng had left the plaintiff’s employment and was unwilling to testify. The two letters sent by the plaintiff’s solicitors to Cheng inviting her to give a statement are in evidence.[5] According to the attendance note of the trainee solicitor who managed to speak to Cheng, Cheng responded “唔係咁方便喎唔好意思” and hung up and was not contactable thereafter. All these are not challenged. I accept that the plaintiff had made an effort to invite Cheng to testify but to no avail. There is no property in witnesses. It is not known if the defendant had tried to subpoena Cheng.

25.  As noted in para 50 of Chan Pui Sze, the drawing of adverse inferences should not be approached in an overly technical manner and, ultimately, it comes down to a matter of ordinary rationality. In this case, although Cheng did not testify,

(a)  the transcript of the telephone conversations between her and the defendant is in evidence;

(b)  the email messages between her and the defendant are in evidence;

(c)  there is CCTV recording of her meetings with the defendant at the plaintiff’s office, although there is no audio recording of what was said;

(d)  the documentation pertaining to the defendant’s loan application is in evidence; and

(e)  she made an email report dated 4 December 2020 to her supervisors of what had happened.

The defendant did not challenge these evidence at trial. Thus, much of what Cheng was expected to say is documented and not disputed.

26.  In para 10 of his closing submissions, Mr Ho said that adverse inference should be drawn against the plaintiff in the following respects of the defendant’s case:

(a)  Cheng only explained the topics, but not the entire content, of the loan agreement before the defendant signed it.

(b)  Cheng did not invite the defendant to seek independent legal advice.

(c)  Cheng did not conduct any meaningful enquiry on Han’s identity.

27.  The first point would not have helped the defendant as it is not the law that she may invalidate the agreements if she was unaware of their precise contents: see Ming Shiu Chung & Others v Ming Shiu Sum & Others (2006) 9 HKCFAR 334 at para 84.

28.  The second point is contradicted by the written acknowledgement of the defendant (at [D/200]) that she had been advised to seek independent legal advice.

29.  As to the third point, the defendant confirmed at trial that Cheng did enquire about Han on 16 October 2020. See para 74(b) below.

30.  As noted in para 48 of Chan Pui Sze, Lord Sumption reiterated in Prest v Petrodel Resources Ltd [2013] UKSC 34 at para 44 that there must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. In the circumstances of this case, I am not satisfied that there is any reasonable basis to draw an adverse inference against the plaintiff for not calling Cheng to give evidence.

D3.  Documentary evidence

31.  Both parties agree that the following documents pertaining to the fictitious orders are not genuine:

(a)  the public notice (公告) purportedly issued by the Shanghai First Intermediate People’s Court (上海市第一中級人民法院) naming the defendant a suspect in a commercial crime;

(b)  the case notification (專案通報) purportedly issued by the Supreme People’s Procuratorate of the PRC (中華人民共和國最高人民檢察院) in relation to the commercial crime in question;

(c)  the multinational arrest warrant (跨國刑事逮捕命令) purportedly issued by the Supreme People’s Procuratorate of the PRC to detain the defendant; and

(d)  the freezing order (凍結管收執行命令) purportedly issued by the Supreme People’s Procuratorate of the PRC to withhold the defendant’s assets.

32.  Subject to the above, there is no dispute over the documentary evidence in the trial bundle.

E.  Discussion

33.  It is trite that parties of full age and ordinary understanding will be held to documents which they have chosen to sign unless there is a recognized legal basis for concluding that their apparent consent has been vitiated or that reliance on such documents by some other person falls into some category of unconscionable conduct justifying relief in equity. To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence. See Ming Shiu Chung at paras 84 and 87.

34.  In this case, the defendant pleads that the agreements have been vitiated by misrepresentation, duress and/or undue influence.

E1.  Agreed issue (1): Whether the defendant was induced by misrepresentation, duress and/or undue influence to enter into the loan agreement and the mortgage agreement?

35.  It is the defendant’s case that she entered into the agreements as a result of the misrepresentation, duress and/or undue influence of Lau and Han.

36.  Mr Chen submitted in his closing submissions that the defendant’s evidence should be rejected because:

(a)  The defendant was evasive under cross-examination and did not answer questions directly. Despite being highly educated and had been in Hong Kong since 2007, she seemed to be ignorant about the difference between the general hotline of the plaintiff and the direct line of Cheng, and confused about the location of the plaintiff’s office in Mong Kok.

(b)  Given her education level, it is unbelievable that she would fall prey to the alleged fraud and for so long. According to her, she did not know the alleged main culprit of the cross-border criminal fraud case (王成明) and had not been to Shanghai where the case allegedly happened.

(c)  She claimed in para 24(c) of the D&CC that she was desperate to return to the Mainland to attend a court hearing on 20 October 2020. Yet, she admittedly did not make the trip until sometime in May 2021.

(d)  Contrary to her pleading (para 11(c) of the D&CC) and witness statement (para 12), the defendant testified that she had not been given Cheng’s name but only a telephone number to call the plaintiff. According to Chan, the defendant called the general hotline of the plaintiff and her call was randomly assigned to Cheng for handling.

(e)  Her claim in para 12(b) of the D&CC that she attended the plaintiff’s office “in continuation of [Han’s] false imprisonment” is inconsistent with the following evidence: (i) she met with Cheng alone on 16 October 2020 and was able to use her own mobile phone whilst Cheng was not around; (ii) she was able to contact her former HKU student in respect of a parcel delivery; and (iii) she had access to her lawyers (to retrieve the title documents of the Property) and her siblings (to further borrow money).

(f)  As regards the meeting of 16 October 2020, the defendant confirmed in evidence that (i) she spoke with Cheng alone, (ii) Cheng did enquire about Han, (iii) Han did not participate in the meeting and did not communicate with Cheng on the paperwork and (iv) Cheng did enquire about the purpose of the loan. All these contradict her pleaded case in para 12 of the D&CC.

(g)  The defendant conceded under cross-examination that her payment of $300 was not “part of the fraud” as alleged in para 14 of the D&CC.

(h)  She lied to Cheng about the identity of Han, the purpose of the loan and the Japanese research.

(i)  There are unexplained in-and-outs in the BOC Account. Amongst those entries, the defendant admitted that the withdrawal of HK$20,000 on 14 October 2020 (at [D130]) was for her to pay management and other charges. It was unlikely for the fraudsters to give money back to the victim.

(j)  The defendant admitted that she managed to recover $400,000 from the fraudsters by civil proceedings. The plaintiff was not informed of this before when the defendant was actively pursuing it for the full extent of her alleged loss.

37.  Notwithstanding Mr Chen’s efforts, I am prepared to accept the defendant’s evidence. Whilst an assessment of the character of a witness plays a part in the fact-finding process, it is a task that may sometimes be elusive even to the best trained eye and ear. The Court of Appeal has suggested in Esquire (Electronics) Ltd v The Hong Kong and Shanghai Banking Corp Ltd and another [2007] 3 HKLRD 439 at 481 that the truth can best be tested by reference to contemporaneous documentation where it exists, or to its absence where one would expect it to have been created, as well as to inherent probabilities having regard to all the facts that are known. This is how the defendant’s evidence is evaluated below.

38.  It is not unheard of that highly educated people would fall prey to well-crafted scams. The defendant is the only witness of what had happened before she approached the plaintiff, in terms of Lau’s calls, Lau’s Representations and Han’s supervision. The plaintiff has no direct evidence to contradict the defendant’s case on the alleged fraud.[6]

39.  The defendant’s case is by and large consistent with the account she gave to the police back in November 2020. Her case is also corroborated by documentary evidence such as:

(a)  the documents pertaining to the fictitious orders;

(b)  the statement of her HSBC account evidencing the transfer of HK$657,000 of her own funds to the BOC Account;

(c)  the CCTV recording confirming that the defendant was accompanied by Han when she attended the plaintiff’s office; and

(d)  the statement of the BOC Account evidencing the in-and-out of the money defrauded.

40.  Mr Chen diligently identified some defects in the defendant’s evidence by contrasting her testimony with undisputed evidence such as the transcript of the telephone conversations and the CCTV recording. It is understandable that the defendant could not remember the details given the long lapse of time. Such defects do not, in my view, go to the crux of the alleged fraud.

41.  The defendant explained in court that she lied to the plaintiff because she was forbidden by the fictitious orders to disclose the criminal fraud case. She referred to:

(a)  the freezing order at [D/123] which stated “持本文涉案嫌疑人官文娜在调查审理期间不得（散布、播送、言论）依刑法刑事泄密罪第三百五十条第二项处三年以上七年以下有期徒刑，并罚人民币五十万元罚金”; and

(b)  the multinational arrest warrant at [D/125] which stated “未授权之公安机关及香港警署不具有调查权…若有任何异常或不配合之举动，应立即进行强制性拘留”.

42.  In my view, the fact that the defendant had lied to the plaintiff does not mean that the whole of her evidence should be rejected, especially in relation to matters unrelated to such lies. Indeed, her lies may be seen as evidence confirming that she was vexed with Lau’s Representations and Han’s supervision at that time.

43.  It is trite that allegations of fraud should be plainly established by evidence and findings of fraud should not be made lightly on a mere balance of probabilities. Based on the evidence before me, I accept the defendant’s case on the alleged fraud.

44.  Both parties referred to para 96 of Purple Surgical UK Ltd v Win Billion Investment Group Limited and others [2024] HKCFI 1643 as to the essential elements of the tort of deceit or fraudulent misrepresentation. In this case, it is clear that a false representation was made by Lau to the defendant in terms of Lau’s Representations. Lau must have known the representations to be false and he must have intended the defendant to rely on his representations. By entering into the agreements, the defendant had relied on such representations and acted to her detriment. I accept that the defendant entered into the agreements as a result of Lau’s Representations. But that is not sufficient to amount to a defence to the plaintiff’s action.

45.  The defendant has abandoned her allegation of conspiracy. There is nothing to connect the plaintiff to Lau’s Representations. “A person who has been induced to enter into a contract with A as a result of a misrepresentation made to him by B and of which A had no notice has no ground of relief against A unless B was A’s agent.” (para 10-031 of Chitty on Contracts)

46.  Similarly, it is not enough for the defendant to establish that she entered into the agreements under duress and undue influence of Lau and Han.

(a)  “Where it is sought to avoid a contract on the ground of duress exercised, not by the party seeking to enforce the agreement, but by some third person, the party seeking to avoid the contract must prove that the other party knew of the duress, or had constructive notice of it or had procured the making of the contract through the agency of the party who exercised the duress.” (para 11-076 of Chitty on Contracts)

(b)  “Where one party seeks to avoid a contract on the ground of undue influence by a third person, it must appear either that the third person was acting as the other party’s agent, or that the other party had actual or constructive notice of the undue influence.” (para 11-148 of Chitty on Contracts)

47.  It is not the defendant’s case that Lau and Han were the plaintiff’s agents. The more pertinent question is whether the plaintiff had notice of the misrepresentation, duress and undue influence of Lau and Han (ie agreed issue (2)). This will be discussed in the next section.

E2.  Agreed issue (2): Whether the plaintiff had actual notice and/or constructive notice of the same?

48.  The defendant pleaded in para 25 of the D&CC that the plaintiff had “actual and/or constructive notice” of the misrepresentation, duress and undue influence. In the particulars provided,

(a)  as for “actual notice”, it is pleaded that:

“By reasons of the matters pleaded herein above at paragraphs 10 and 15, the Plaintiff has notice of the Fraud at all material times and hence the aforementioned misrepresentations, duress and undue influence;”

(b)  as for “constructive notice”, it is pleaded that:

“(a) By reasons of the matters pleaded herein above at paragraph 10, the Plaintiff has constructive notice of the Fraud at all material times and hence the aforementioned misrepresentations, duress and undue influence;

(b) In particular, the Defendant shall rely on Cheng’s failure to make reasonable inquiry into the identity and authority of Han, to speak to the Defendant alone without Han, to inquire the purpose of the loan and/or to advise the Defendant to seek independent legal advice. Had Cheng done so, she would have discovered the aforementioned misrepresentations, duress and undue influence on the Defendant.”

49.  Mr Chen took three pleading objections.[7]

50.  First, it is argued that the plea of “actual and/or constructive notice” on the part of the plaintiff is a “rolled-up plea” that is liable to be stuck out.

51.  It is baffling for the plaintiff to raise this objection after trial when it did not seek to strike out the plea earlier.

52.  It was explained in Top Point Limited v K&L Gates (A Firm of Solicitors) [2020] 1 HKLRD 814 at para 19 that,

“… a ‘rolled-up plea’, ie a plea which, on its face, alleges actual or alternatively constructive knowledge, is not treated as making two alternative allegations. Instead, it is treated as a single allegation that a person ought to have known.”

53.  Thus, the plea that the plaintiff has “actual and/or constructive notice” per se is equivocal and may be taken as making a single allegation of constructive notice only. But para 25 did not stop there. It also contained particulars for “actual notice” and “constructive notice”. Reading para 25 as a whole, it is clear that the defendant is alleging both “actual notice” and “constructive notice” and the plaintiff could not have been mistaken about both aspects of the defendant’s case.

54.  Secondly, it is said that the defendant has failed to plead that Cheng was acting as the plaintiff’s agent or that Cheng’s knowledge should be imputed to the plaintiff. With respect, there is no merit in this objection.

55.  As stated in Bowstead and Reynolds on Agency, 23^th edition (2024):

(a)  A company can operate only through individuals. Under common law, the rules of agency and vicarious liability suffice to enable a company to be held liable and entitled in respect of acts performed, and the states of mind held, by its agents and employees in the same way as a human principal. (para 1-028)

(b)  A principal is generally imputed with knowledge relating to the subject matter of the agency which an agent acquired while acting for the principal. (para 8-028)

56.  In para 8.4 of the plaintiff’s Reply and Defence to Counterclaim (“R&DCC”), “It is admitted that Cheng was an employee of the Plaintiff and, at all material times, a representative of the Plaintiff in the dealing with the Defendant”. It is therefore open to the defendant to argue that the knowledge acquired by Cheng as the plaintiff’s representative, through her dealings with the defendant, is imputed to the plaintiff.

57.  Thirdly, Mr Chen complained that the defendant went beyond her pleading in advancing her case on constructive notice.

58.  The final shape and size of the defendant’s case on constructive notice is captured in para 29 of Mr Ho’s closing submissions:

“In D’s submissions, P was put on both actual and constructive notice of the fraud, duress, undue influence and/or misrepresentation practiced on D by reason of the following facts:

29.1  D was a retired single woman at the age of 68 at the material time;

29.2  Save and except the 3 deposits in US$ shown in her HSBC statements [D/386-392], there is no proof that D had any income, let alone salary, at the material time;

29.3  There is no proof of D’s representation regarding her Japanese research (日本研究) and research fee (研究成果費);

29.4  As accepted by CMS, the Loan was applied in an unusually urgent manner;

29.5  There was no proper explanation as to the purpose of the Loan;

29.6  D was accompanied by an unknown woman whenever she attended P’s office. It was noticed by Cheng that this woman was making recording when she was present in the conference before the Mortgage was executed.”

59.  All these points, except point 29.4, are grounded in pleading.[8]

60.  “CMS” in point 29.4 is a reference to Chan. Under cross-examination, he agreed that the defendant appeared to be in urgent need of the loan having regard to what she told Cheng over the telephone (“鄭小姐我也不好意思啊，因為現在有點急用錢” at [D/471]) and Cheng’s email report (“簽約後至DRAWDOWN其間，官小姐差不多每天都致電29962688催我們要盡快放款，她很急需用到這筆貸款” at [D/252]).

61.  Point 29.4, which is concerned with the defendant, is indeed inconsistent with para 17 of the D&CC which is concerned with the plaintiff:

“… the Plaintiff ignored all due process in processing the mortgage and rushed to approve the loan to the Defendant in an unusually speedy manner.”

62.  Having disposed of the preliminary objections, I can now turn to the substantive argument.

63.  To start with, there is no direct evidence that the plaintiff had “actual notice” of the misrepresentation, duress and undue influence of Lau and Han.

64.  In the particulars for “actual notice”, the defendant referred to paragraphs 10 and 15 of the D&CC (para 48(a) above).

(a)  Paragraph 10 is concerned with the opening of the BOC Account and the defendant’s injection of HK$657,000 into it.

It is not the defendant’s evidence that she had told Cheng anything about the opening of the BOC Account or her dealings with that account. The defendant’s instruction to the plaintiff was to remit the HK$2 million loan to her HSBC account ([D/418]).

(b)  Paragraph 15 is concerned with the allegation that despite Cheng’s assurance on 6 October 2020 that the loan could be drawn down as soon as possible, the loan was not remitted until 27 October 2020.

The defendant’s pleaded case is contradicted by documentary evidence. The transcript of the telephone conversation between the defendant and Cheng on 6 October 2020 is at [D/467] to [D/469]. On that occasion, Cheng merely told the defendant, “呃你可以先電郵文件過來，我們再做一個審批，審批完之後我們約官小姐你上來我們的公司簽合約” (at [D/468]). There was no assurance that the loan could be drawn down as soon as possible.

When the defendant called back on the following day, Cheng told her (at [D/472]), “對，那個房契你簽約的那天，你拿去律師樓，他們會看的，大概是一個星期或者是兩個星期之後，大概，你大概是等兩個星期之後才可以拿到錢。…”.

Thus, the allegations in paragraphs 10 and 15 of the D&CC are not borne out by the evidence. In any event, they do not show that the plaintiff had “actual notice”.

65.  In the particulars provided for “constructive notice”, the defendant referred to paragraph 10 of the D&CC again as well as some allegations against Cheng (para 48(b) above).

66.  As discussed above, paragraph 10 does not assist the defendant.

67.  The allegations against Cheng are not borne out by the evidence either:

(a)  It is the defendant’s own evidence that Cheng did enquire about the identity of Han on 16 October 2020. See para 74(b) below.

(b)  The CCTV recording confirms that Cheng did speak to the defendant alone on 16 October 2020.

(c)  It is apparent from the transcript that Cheng did enquire about the purpose of the loan. See paras 77 and 78 below.

(d)  The defendant acknowledged in writing that she had been advised to seek independent legal advice on the loan.

68.  Mr Ho also argued that the points enumerated in para 29 of his closing submissions (para 58 above) would put the plaintiff on notice. With respect, I do not agree.

69.  Points 29.1 to 29.3, concerning the enquiry on the defendant’s ability to repay, are elaborated in paras 22 to 26 of Mr Ho’s closing submissions.

(a)  I reject the suggestion in paras 22 and 23 that the plaintiff made no or no proper enquiry on the defendant’s occupation and income status. What emerges from Cheng’s enquiry over the phone is that (i) the defendant was engaged in ad hoc research after her retirement from HKU (“已經從香港大學退休以後，我現在偶爾，對，有時候還是繼續做研究工作吧” at [D/469]), (ii) she was doing research in Japan (“我還有些研究工作在日本做” at [D/470]) and (iii) she was expecting some research fee (“哦收入是吧...那個收入，那個是到研究課題結束以後，他會有這個研究成果費” at [D/479]).

(b)  I do not accept para 24 of Mr Ho’s closing submissions. The fact that the defendant has retired from formal employment does not mean she cannot be engaged in paid ad hoc research.

(c)  It is wrong for Mr Ho to criticize in para 25 that Cheng did not follow up on the research fee alleged by the defendant. It is apparent from the transcript (at [D/479]) that Cheng did follow up and the defendant confirmed the nature (“對，做日本研究”), the amount (“大概是多少是吧？ ... 大概就是，唔，在兩百萬左右吧”) and the timing (“啊對，三月份以前，因為四月是新的年度，三月以前吧…”) of the research fee.

70.  In fact, it was in the course of enquiry that Cheng brought up the three deposits in the defendant’s HSBC statements (“唔，唔，等一下啊。還有，我在你的滙豐銀行那一邊我看到一些是美金的收入來的，這是什麼來的？” at [D/480]).

(a)  As to the deposit of USD21,400 in June 2020 (at [D/379]), the defendant confirmed that that was in relation to her Japanese research.

“Cheng : 這個是日本研究來的是不是？

Defendant : 對…

Cheng : 日本研究用美金來計算，就是日本研究的費用是不是？

Defendant : 對”

(b)  And the defendant likewise confirmed that the two USD deposits in August 2020 (at [D/377]) also related to the Japanese research.

“Cheng: 啊。OK。呃八月份還有的，有一個$3052還有一個$3566，這兩個都是日本的研究是不是？

Defendant : 唔，對

Cheng: 好的好的。如果有收入應該沒什麼大的問題，那還有，你只有這個物業是不是？只有這個房子？

Defendant : 對啊我在香港 … 就這一個

Cheng : 好的…”

71.  Turning to para 26 of Mr Ho’s closing submissions, it remains a mystery as to why it was stated on the application form that the defendant was a “General Worker / Skill Worker / Driver” with a monthly income of “$72,385” ([D/412] to [D/413]). Neither the defendant nor Chan was able to explain it.

72.  Even if I accept that Cheng made a mistake here, the responsibility ought to be shared by the defendant as she signed on the application form to acknowledge such information ([D/412] to [D/413]).

73.  It is pertinent to differentiate between “imputed knowledge” and “constructive knowledge”. Imputed knowledge is concerned with deeming a principal to know that which an agent actually knows. Constructive knowledge is concerned not with things that the principal and agents know but with things the principal ought to have known about by reason of being put on inquiry. The two concepts can operate in tandem and the actual knowledge an agent has can generate in the principal a duty to make further inquiry. Whether the agent’s actual knowledge triggers a duty of further inquiry turns on the facts and on the source of the duty to inquire.[9] Mr Ho did not explain how Cheng’s mistake would generate a duty of further inquiry on the part of the plaintiff.

74.  The only person who could tell the plaintiff about the alleged fraud was the defendant herself. It is not the defendant’s evidence that she told Cheng anything about Lau’s Representations or Han’s supervision. In fact, she lied to the plaintiff in both regards:

(a)  When the defendant first approached the plaintiff on 6 October 2020, she told Cheng “那我有些事情跟您這裏商量一下，問一下請問一下，那個我是住在珀麗灣的…我能不能夠用這個房子去貸款，就是說，我現在住的房子是我個人所有，然後呢，我想貸款。可以做這個貸款的工作嗎？” and asked “…我這個房子貸款能貸兩百萬嗎？港幣”.

When Cheng asked her “想問一下官小姐，你在哪一個途徑知道我們新鴻基信貸的？”, she answered “朋友介紹的”. ([D/467] to [D/468])

When Cheng later (on 12 October 2020 at about 9:38 am) asked about the purpose of the loan, the defendant answered, “因為退休以後沒有收入了，我需要暫時需要還一筆錢，然後呢這個在半年以內，我這個錢能夠周轉過來我就可以還你，這個貸款就能還了。” ([D/478])

So, the defendant did not tell Cheng that she was referred to the plaintiff by Lau or Lau’s superior and about Lau’s Representations and the pre-arranged loan of HK$2 million.

(b)  It is the defendant’s evidence that on 16 October 2020 she introduced Han to Cheng as a student, as Han had told her that she was studying PhD at City University.[10] The defendant agreed that there was no basis for Cheng to second-guess (質疑) her introduction.

So, the defendant did not tell Cheng the real identity of Han, that Han was there to supervise her movement or that she was being falsely imprisoned at the time.

The defendant only informed Cheng of Han’s real identity on 18 November 2020. As recorded in Cheng’s email report at [D/253], “官小姐出示她到警署報案的口供紙...又說幾次陪她上來的不是朋友，而是口供紙裡提及的騙徒小韓，我即時問官小姐為什麼不同我說那位是騙徒，而是朋友，如果同我說的話，當時就可以幫她報警，她稱因為很害怕不敢說。”

75.  Even if the plaintiff had been prompted to make further inquiry, the defendant would not have told Cheng about the misrepresentation, duress and undue influence of Lau and Han.

76.  As regards point 29.4, Mr Ho did not elaborate on what he meant by “unusually urgent manner”. According to Chan, the plaintiff as a licensed money lender often handles applications with some urgency.[11]

77.  I reject the suggestion in point 29.5 that the plaintiff had failed to make proper enquiry as to the purpose of the loan. It is clear from the exchanges during the telephone call on 12 October 2020 at about 9:38 am that Cheng did enquire about the purpose of the loan (at [D/478]).

78.  In para 27 of his closing submissions, Mr Ho suggested that the plaintiff had failed to make proper enquiry as to the “many different reasons” offered by the defendant. A closer look at the transcript would reveal that the defendant mentioned a few hypothetical scenarios (“比如說我要買房子或者幹嘛，那我需要用這筆錢，所以才貸款” and “比如說那個「一保家」和一個「一保」還是什麼”) before committing to her answer that she required a short-term bridging loan (“因為退休以後沒有收入了，我需要暫時需要還一筆錢，然後呢這個在半年以內，我這個錢能夠周轉過來我就可以還你，這個貸款就能還了。”). And Cheng did confirm her answer:

“Cheng : 哦是用來周轉的是嗎？

Defendant : 對

Cheng : 我寫周轉啦

Defendant : 好的謝謝你。這個半年肯定是能解決，應該是可以的解決的”

79.  As to point 29.6, Cheng stated in her report (at [D/252]) that the lady that accompanied the defendant to the plaintiff’s office on 27 and 29 October 2020 went inside the room and appeared to be making an audio recording. It must be pointed out that the loan agreement was concluded on 16 October 2020. The defendant returned on 27 October 2020 to sign the mortgage agreement. The defendant later returned on 29 October 2020 to ask for a further loan of HK$1 million from the plaintiff which was refused. Mr Ho did not explain how Han’s recording of the subsequent meetings would show that the plaintiff had notice of the misrepresentation, duress and undue influence before.

80.  All in all, there was nothing to put the plaintiff on inquiry. Given the fact that the defendant deliberately lied to the plaintiff in the application process, there was no means for the plaintiff to find out the truth even if it was put on inquiry.

81.  I reject the defendant’s case that the plaintiff had actual or constructive notice of the misrepresentation, duress or undue influence of Lau and Han.

E3.  Agreed issues (3) and (5)

82.  Agreed issues (3) and (5) can be dealt with together.

83.  Mr Ho clarified in para 23 of his opening submissions that the defendant did not go so far as to suggest that the agreements were illegal. In para 31 of his closing submissions, he submitted that “on the strength of the principle set out in Alexander v Rayson [1936] 1 KB 169 at 182, even though the Loan Agreement and the Mortgage are not in itself unlawful, P being the party that has notice of the fraud (in D’s submissions) should be precluded from suing upon them.”

84.  The passage relied on by Mr Ho is this:

“It is settled law that an agreement to do an act that is illegal or immoral or contrary to public policy, or to do any act for a consideration that is illegal, immoral or contrary to public policy, is unlawful and therefore void. But it often happens that an agreement which in itself is not unlawful is made with the intention of one or both parties to make use of the subject matter for an unlawful purpose, that is to say a purpose that is illegal, immoral or contrary to public policy. The most common instance of this is an agreement for the sale or letting of an object, where the agreement is unobjectionable on the face of it, but where the intention of both or one of the parties is that the object shall be used by the purchaser or hirer for an unlawful purpose. In such a case any party to the agreement who had the unlawful intention is precluded from suing upon it. Ex turpi causa non oritur actio. The action does not lie because the Court will not lend its help to such a plaintiff. Many instances of this are to be found in the books.”

85.  In Alexander v Rayson, the landlord (Alexander) split up what was essentially one transaction (the lease) into two contracts to defraud the authority as to the true rateable value of the premises. The contracts were signed by the tenant (Mrs Rayson) who did not suspect anything sinister about these contracts. When Alexander sued Mrs Rayson for outstanding payments under the contracts, the English Court of Appeal held that he was not entitled to seek assistance of the court in enforcing the contracts which were regarded as fraudulent in purpose.

86.  In this case, the parties entered into the agreements in the course of the plaintiff’s money lender business. There is nothing to indicate that the plaintiff had any fraudulent purpose in the transaction. I do not think Alexander v Rayson applies to this case.

87.  I have also rejected the defendant’s case that the plaintiff had notice of the misrepresentation, duress or undue influence. There is no basis for the defendant to rescind the agreements.

F.  Conclusion

88.  Whilst I accept that the defendant entered into the agreements by reason of misrepresentation, duress and undue influence, there is no basis for her to rescind the agreements as the fraudsters were not the plaintiff’s agent and the plaintiff had no notice of the fraud. The defendant’s counterclaim is dismissed.

89.  The plaintiff is entitled to enforce the agreements against the defendant. The defendant is liable to repay the plaintiff the loan together with interest and overdue interest as claimed. In default of repayment, the plaintiff is entitled to enforce the mortgage against the defendant.

90.  I therefore enter judgment in favour of the plaintiff and against the defendant in terms of prayers (1) and (2) of the Statement of Claim.

91.  The plaintiff is entitled to indemnity costs under clause 17 of the loan agreement and clause 22 of the mortgage agreement. I make an order in terms of prayer (3) on costs inclusive of the plaintiff’s costs in defending the counterclaim and all reserved costs.