SHUM YIP WA SHENG CO. LTD. v. JING FAR ENTERPRISES (HONG KONG) LTD. and Another

1995, No.A6155

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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R U L I N G

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1. This is an action where the plaintiff, a money lender, is suing under two loan agreements.

2. The parties had spent nearly a day seeking to compromise this matter, but that factor I have disregarded for the purpose of giving this preliminary ruling.

3. The 1^st defendant is defending this because he says there is a breach of the Money Lenders Ordinance which would entitle the court to declare this is unenforceable.

4. There is a second part to this case because there is a 2^nd defendant, a gentleman from Mainland China, apparently the legal representative of a company, who has given a guarantee in a deed and the parties have agreed and I also agree that it is of help to decide the first point, namely whether or not these Agreements are enforceable; if they are not enforceable, the guarantee would go with it.

5. The defence originally said that the plaintiff was not a registered money lender. The certificate has been produced which shows that at the material time, they were a registered money lender and that point is now not being put forward.

6. Mr Ho, with his usual ability, has spotted, when one looks at the agreement, what he says are the absence of certain terms under s.18 of the Ordinance. There has to be a note or memorandum within seven days after making the agreement setting out a variety of matters, i.e. name and address of the money lender, etc. as set out in subsection (2)(a)-(j). It is odd that these registered money lenders in Hong Kong do not, in my experience, appear to always comply with these matters. Nevertheless, Mr Ho is right that that is what the law says. And if that is so, it must be followed and there are absent from the documents the addresses of the money lender and borrower and the name and address of the surety, declarations in place of negotiation, etc., all matters which he set out. However, I have had regard to the fact that there are two loan agreements here, there is a confirmation of the allocation of money which has been sent out, there were issued monthly interest charge invoices and payments have been made in fact of interest, some US$60,000 odd under the first agreement and another sum under the second agreement. No principal has been repaid, but interest has been paid.

7. I have looked at all the surrounding circumstances and under s.18(3), even if the form of agreement has not been accompanied, within this period of seven days, with the proper note or memorandum, nevertheless, subsection (3) permits the court, having regard to all the circumstances, to look at the equity of the matter. In my judgment, the equity of the matter is all one way here. It would be quite wrong of me not to enforce this Agreement having regard to the documents which I have looked at. Therefore, the defence of the 1st defendant would go and the two agreements are enforceable against the defendants.

8. That leaves the other part of this case on which evidence is to be called and I will therefore leave this ruling at that.

9. The other part Mr Ho has asked me to clarify is that under the agreement, although this was a loan in US dollars for the provision of property facilities in America, it is a Hong Kong agreement, made in Hong Kong, between Hong Kong parties and in so far as the construction is concerned, I am in no doubt at all that the rate of interest charged, which is 4% over prime, means "prime prevailing in Hong Kong", it does not mean anything to do with the US interest rate.

10. The other point is that there is an unusual provision in the agreement which would appear to indicate that there was an extra interest charge of 20% if default was made. It is unusual because Mr Ho very properly said this could be indeed interest on interest, or compound interest, which would fall foul of the Ordinance at any rate. Under subsection 2(i) of the Ordinance, the rate of interest charged has to be such as a rate per cent per annum.

11. By virtue of subsection (3), I can order that the agreement is enforceable subject to such modifications or exceptions if the court considers equitable. I would consider it equitable to delete that portion of the agreement that relates to the extra interest. Mr Wu, very properly in my judgment, recognising the difficulty, has indicated that at any rate his clients would not seek this extra interest. But I think, as a matter of protection to Mr Ho and his clients, I would have deleted that at any rate so that it is only enforceable for the principal sum and interest rate of 4% over prime which is prime according to Hong Kong law.

Second Part

12. This is an action brought by the plaintiff who are registered money lenders. I have already ruled that the 1^st defendant has no defence. The only matter of concern I felt in this case is why O.14 was not used. It seems to me that if O.14 had been used, judgment would have been obtained a long time ago. I can see no defence to an action on a guarantee. The 2^nd defendant who is the managing director of the 1st defendant and is a Mainland businessman and is apparently the legal person, which is a term used in Mainland companies. His company had borrowed $3 million and has not paid it back. It was apparently borrowed for either property development or speculation in America and that has been put on hold. They have paid back a few tens of thousands of US dollars in interest. After the company began to default, he was asked to provide a personal guarantee. I can well understand the plaintiff's wanting it, the consideration had passed and therefore it was entered into by deed. I cannot see there has ever been any defence to this and a document which was not in the original bundle - fax from the defendant - speaks volumes in itself. It completely destroys any potential defence there might have been. He says he was in some way induced to enter into this by being told that this was just part of the formalities. He is obviously a very experienced businessman and knows exactly what is going on, and the solicitors acted perfectly properly. I accept his evidence wholeheartedly. The 2^nd defendant was told to get independent legal advice, he was given a guarantee in English and then he sent a fax saying "Since the guarantee is in English I cannot understand its content and nature. In view of this please translate the guarantee into Chinese so as to have both versions in comparison". Then he says he wanted it signed by him alone and not the fellow director, Madam Chan, who had refused to sign the guarantee. Also he says this "there ought to be a certain date of deadline given to me when making the demand of the repayment of debt so as to enable me to plan and arrange funds". He obviously knew that he was liable but what happens with these Mainland Chinese companies, in my experience, when people such as legal persons give guarantees, is that they go along to the company and say "come along, you pay after all".

13. I can see no defence at all to this. He signed it. He knew what he was signing and I find that there is nothing in any way which could invalidate this guarantee. There will be judgment for the plaintiff against both defendants for the principal plus interest.