RE LAU KAM SING DICKIE

CACV 330/2019, [2023] HKCA 506

On appeal from [2019] HKCFI 1855

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 330 OF 2019

(ON APPEAL FROM HCB NO 2311 OF 2019)

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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 the debtor’s appeal against the bankruptcy order made by Au-Yeung J on 24 June 2019. The matter arose in this way.

Background

2.  By a loan agreement dated 14 July 2016, Lo Hon Kwong (“the creditor”) advanced $8 million to Lau Kam Sing Dickie (“the debtor”), with interest at 2% per month, to be repaid on 16 June 2017. On 27 February 2019, the creditor issued a statutory demand against the debtor for repayment of the principal of $8 million and interest in the sum of $704,000 from 16 October 2018 to 27 February 2019. The demand was served on the debtor personally on 25 March 2019.

3.  The debtor did not make any payment, nor did he apply to set aside the statutory demand.

4.  On 18 April 2019, the creditor presented a bankruptcy petition against the debtor based on the statutory demand.

5.  Although the debtor’s solicitors filed a notice to act on 20 May 2019, they did not have instructions to accept service of the petition. Hence, the petition was served on the debtor personally on 4 June 2019.

6.  The petition came before a bankruptcy master on 19 June 2019. Two days before that hearing, on 17 June 2019, the debtor’s solicitors filed a “Notice by Debtor of Intention to Oppose Petition”, stating that the debtor “intends to show cause against the petition and that he intends to contend that the Petitioner is a money lender without a licence of money lender and is therefore not entitled to recover in any event any money lent by him or any interest in respect thereof or to enforce any loan agreement made in respect of any loan made by him to the Debtor by virtue of section 23 of the Money Lenders Ordinance, Cap 163 of the Laws of Hong Kong.”

7.  As the petition was not unopposed, the bankruptcy master transferred the petition to a bankruptcy judge. No affirmation in opposition was filed by the debtor before the petition was heard on 24 June 2019 by Au-Yeung J, sitting as a bankruptcy judge. The debtor’s solicitor, Mr Pang Kam Fai Dickson (“Mr Pang”), sought an adjournment of one week to file an affirmation in opposition. The judge refused an adjournment and made a bankruptcy order, which is the subject of this appeal.

The judgment below

8.  The judge’s reasons appeared in §§6 to 8 of the judgment given on the same day (“Judgment”)[1]:

“6. The court asks rhetorically: what is there to oppose? It is not appropriate for a debtor to sit on a petition and wait for the court’s direction to file an affidavit in opposition. He should have made use of the time from service to the hearing and used his best endeavours to produce sufficiently precise evidence which is believable to demonstrate a bona fide dispute as regards the debt: Re Szeto Chi Sing, a Debtor [2019] HKCFI 434, Au-Yeung J, §13.

7. I have heard the submission of Mr Pang today. Even if I accept all that he says as to the facts, there is no arguable issue of law raised:

(1) There is no doubt there was a loan for $9.8 million in 2014 but the interest was only 2% per month. That did not violate the Money Lenders Ordinance, Cap 163.

(2) Allegedly, the creditor had lent money to [the debtor] and his friend. The small number of loans in itself did not make the creditor a moneylender within the meaning of the Money Lenders Ordinance. Mr Pang could not point to any other provision in the Ordinance to assist the court.

(3) [The debtor] claims that the client would pay him US$2 million and that would be sufficient to pay off the debt. There is no proof of such intended payment. Again, even based on what Mr Pang told the court, the invoice stated the due date of payment to be 11 June 2019 which is now past. There is nothing to indicate that the money would be coming from the client in the near future.

(4) [The debtor] has purportedly been negotiating with the creditor for settlement. Such conduct is inconsistent with his having a moneylender’s defence. But in any event, negotiation for settlement is not a ground for adjournment nor is it a defence to the petition.

8. In the premises, I can see nothing which can demonstrate a bona fide dispute as regards the debt stated in the petition. I therefore issue a bankruptcy order. Costs be to the petitioner.”

9.  We have no reason to think that the salient points made in Mr Pang’s submission on the debtor’s behalf have not been correctly set out in §7 of the Judgment, or that the judge had omitted to mention anything of significance in his submission. Although we were not provided with a transcript of that hearing, both sides have obtained an audio CD of the hearing before Au-Yeung J. If there were any inaccuracy or omission regarding Mr Pang’s submission as stated in the Judgment, either party would have drawn our attention to this.

The grounds of appeal

10.  The debtor filed a notice of appeal on 19 July 2019 settled by counsel, raising these two grounds of appeal:

(1)  The judge erred in law in proceeding on the basis it was legally irrelevant whether the creditor was a money lender operating without a licence, contrary to section 23 of the Money Lenders Ordinance (“MLO”). It was relevant because if the creditor were such a money lender, the true sum owed by the debtor would not be a pre-ascertained liability and could only be determined after the court exercises its discretion under the proviso in section 23. The debt in the petition would not be a debt of a liquidated sum and the condition in section 6(2)(b) of the Bankruptcy Ordinance, Cap 6 for the presentation of a petition would not be satisfied.

(2)  The judge further erred in proceeding on the basis that if the debtor were allowed to file evidence, he could not possibly demonstrate, or demonstrate a bona fide dispute on substantial grounds, that the creditor was such a money lender.

11.  On 8 September 2020, the debtor’s solicitors issued a summons to adduce in this appeal an affirmation made by the debtor dated 8 September 2020 with documentary exhibits that he would have filed if the judge had granted him an adjournment. The application was refused by the Court of Appeal on 13 August 2021, on the ground there was no valid reason for the delay of 14 months in taking out the application and also on the basis that one of the conditions in Ladd v Marshall [1954] 1 WLR 1489 at 1491 (that the new evidence could not have been obtained at the trial with reasonable diligence) was not met[2]. Leave to appeal to the Court of Final Appeal against this judgment of the Court of Appeal was refused by the Court of Appeal on 8 July 2022[3].

12.  The debtor has filed a notice to act in person in this appeal on 6 September 2021. He lodged his submissions written in English on 27 February 2023, citing various provisions of the MLO and two cases. On the day of the hearing of this appeal, he handed up to the court his submissions written in Chinese of seven pages (“the Chinese Submissions”)[4]. He supplemented his written submissions with oral submissions. He sought an adjournment of this appeal for seven days for him to adduce further evidence so that (as he submitted) he could have a fair hearing and justice could be seen to be done.

13.  As we have pointed out to the debtor, quite a number of matters mentioned in the Chinese Submissions and his oral submissions were not before the judge and some were entirely new in that they were not even raised in his last application to adduce new evidence in September 2020. One notable example concerned his alleged discovery that the creditor did not have a money lender’s licence. In September 2020, he merely asserted he “only discovered that the Petitioner did not have a money lender’s licence on 17 June 2019, whereupon [he] immediately instructed [his] solicitors to file a Notice of Intention to Oppose Petition”. In his submissions to us at the hearing of this appeal, he mentioned for the first time that he learned of this from a business associate whose company operated as a licensed money lender, and that this licensed money lender was unable to lend him money and take over the loan from the creditor because it would only deal with a licensed money lender[5]. All these information was allegedly provided to Mr Pang a week before the hearing of the petition.

14.  Leaving aside any issue of credibility, the debtor’s dilatory and piecemeal manner of adducing evidence in legal proceedings is wholly unacceptable. As we have remarked to him in the course of his oral submissions, his method of providing information is akin to squeezing a tube of toothpaste. He cannot rightly complain of any order adverse to his interest as this is entirely of his own making.

15.  His application for an adjournment of this appeal for seven days to adduce evidence is misconceived. As the Court of Appeal has already rejected his application to adduce further evidence on appeal, the evidence to be considered in this appeal should be the same as the evidence placed before the judge at the hearing of the petition on 24 June 2019. The above allegations in the Chinese Submissions and his oral submissions of the date and circumstances when he discovered that the creditor was an unlicensed money lender would not be taken into consideration, as this is not in evidence in the appeal bundle. Nor would we take into account any “security document(s)”[6] for the loan. If they were meant to refer to personal and corporate guarantees, leave to adduce such documents has been refused by the Court of Appeal.

Legal principles

16.  This appeal goes to the exercise of the judge’s discretion in refusing an adjournment of one week for the debtor to file evidence in support of his contention that the creditor was a money lender operating without a licence. In accordance with established principles, the appeal court would not interfere with the judge’s exercise of discretion unless it is shown that the discretion was exercised under an error of law or in disregard of principle or under a misapprehension of material facts, or that the judge took into account irrelevant matters or failed to take into account relevant ones, or that the decision reached in the exercise of discretion was plainly wrong or was outside the generous ambit within which a reasonable disagreement is possible (Hong Kong Civil Practice 2023, vol 1, §59/0/54). Further, it is well-established that a bankruptcy order is made in the exercise of the court’s discretion (Re Lo Tak Wing Benson, ex p Ngan Ng Yu Ying [2023] HKCA 192 at §12).

17.  Where the debtor has admitted the loan and raised a defence that the creditor is a money lender operating without a licence, the burden is on the debtor to establish that the creditor was carrying on business as a money lender as defined in section 2(1) of the MLO, namely, that he is one “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” (Outstanding Management Consultant Ltd v Gold Topmont Ltd & Anr [2023] HKCFI 155 at §30).

Discussion

18.  The debtor submitted that the judge was wrong in law in §7(2) of the Judgment for taking the view that on the allegation that the creditor had lent money to the debtor and his friend, “the small number of loans in itself did not make the creditor a money lender within the meaning of the Money Lenders Ordinance”. In support of his contention, he cited Chan Miu Chu Zoe v Choi Chiu Yuk, HCA 698/2012, 21 February 2014 at §21; and Re Florescent Holdings Ltd [2022] 2 HKLRD 203 at §§21 and 39.

19.  In Chan Miu Chu Zoe, Registrar K W Lung gave unconditional leave to defend in an application for summary judgment where the defendant alleged inter alia the plaintiff was a money lender operating without a licence. The Registrar considered a number of authorities[7] and formulated these legal principles at §21:

“The legal principles for determination of the issue on whether the lender is carrying on business as a money-lender under section 2 of the Ordinance, as according to the above authorities, can be summarized as follows:

a. The issue is a matter of fact to be determined by the court for each case. It is not possible to set out any description or definition, still less fixed formula for the determination of this issue. Each case must depend on its own facts. Conroy v Kenny [1999) 1 WLR 1345G, in which Kennedy LJ. had considered Litchfield’s case and Newton’s case;

b. The number of transactions made by the lender is not the determining factor. The court has to look at all the relevant facts of the case. Even one transaction may be sufficient if there is evidence to show that the lender was a money-lender at the time of the transaction. Conroy at 1345H;

c. The proper approach for the court to determine this issue is to look at the evidence to determine if the lender was, at the material time, a money-lender within the meaning of the Ordinance, and if so, it is not necessary to consider further. If there is no such evidence, the court then should look for other evidence as, at the relevant time, whether the lender had advertised or held out as a money-lender. Conroy at 1346D;

d. Our Court of Appeal in Chow Wun Sing Winston v Yiu Chun Luk CACV No. 295 of 2006 (20 February 2008) at paragraph 15 adopted the case of Conroy v Kenny [1999] 1 WLR 1345G; and the Court of Appeal agreed with the Judge that even if the lender made the loan at remunerative interest rates and with proper security, this might not be an indicia of a money-lender. See paragraph 18.

e. In an Order 14 application where the court will not conduct a mini-trial on the affidavits, the court may make a summary judgment if the defendant is clearly unable to adduce any evidence to support the allegation that the plaintiff was, at the material times, a money-lender. Huang Mucai v Cheng Zhen Shu HCA No.1237 of2011 (17 September 2012).”

20.  Registrar Lung considered the evidence filed on both sides and the factual disputes on the evidence, which were substantial. He concluded that the defendant had discharged the burden to show triable issues and therefore gave unconditional leave to defend[8].

21.  The principles formulated by Registrar Lung were adopted by Deputy High Court Judge Le Pichon in Re Florescent Holdings Ltd at §§21 and 39. The company resisted a creditor’s winding-up petition raising inter alia the contention that the petitioner was an unlicensed money lender and its loan to the company of $250 million was therefore prima facie unenforceable. The petitioner maintained it had never made any loan to anyone prior to its loan to the company and had never advertised nor held itself out to be in the business of making loans. The judge considered the evidence filed on both sides, and found the petitioner’s account “particularly troubling” and “[there] is clearly more to the Loan transaction than meets the eye”. She concluded that the company had made out an arguable case the petitioner was a money lender and dismissed the petition[9].

22.  Particular reliance was placed by the debtor on §§38 to 39, which read as follows:

“38. The petitioner submitted that the carrying on of a ‘business’ requires a degree of repetition, system and continuity. Accordingly, a single loan (which is the present case), is generally insufficient to cause a lender to be treated as a ‘money lender’ within s.2(1) of the MLO, citing Link Excellent Ltd v Ruijun Technology Ltd (HCA 1993/2016, [2017] HKEC 2421, 6 November 2017).

39. Those remarks were made based on the evidence before the court in that case. As earlier noted, whether a person is a money lender in relation to a particular transaction is highly fact-sensitive: the number of transactions made by the lender is not the determining factor. Even one transaction may be sufficient: see Chan Miu Chu Zoe at [21 b] and [21] above.”

23.  The debtor submitted that whether a person is a money lender in relation to a particular transaction is highly fact-sensitive and the number of transactions made by the lender is “not the determining factor”. Hence, the judge was in error in §7(2) of the Judgment in taking the view that a person cannot be a money lender if he has only granted a few loans.

24.  The debtor also relied on these matters as indicating that the creditor was in the business of making loans:

(1) there was no “pre-existing relationship”[10] between the debtor and the creditor;

(2) the loan was for a large amount, namely, $8 million;

(3) the loan agreement was prepared by a firm of solicitors;

(4) the terms of the loan agreement are complicated;

(5) clauses 5 and 6 of the loan agreement charged interest at 2% per month (i.e. 24% per annum) and if in default of payment of interest, the rate of interest on the unpaid interest amount and on the loan shall be immediately increased and charged at 150% of the original rate (i.e. 36% per annum), and these rates of interest are substantial;

(6) there was repetition in that there were two loan agreements between the parties; and

(7) there was continuity in that the period of lending to the debtor was over four years.

25.  Further submissions were made on the premise that in the event the creditor was an unlicensed money lender, it is probable that he would also have contravened other provisions of the MLO: section 18(1) (no written note or memorandum containing the requisite particulars was made or provided to the debtor within seven days after the loan agreement); section 22(1)(b) (prohibition of repayment of the loan by instalments under clause 3 of the loan agreement); section 22(1)(c) (charging of default interest under clause 6 of the loan agreement). If the creditor is in breach of sections 18, 22 and 23 of the MLO, the court may exercise its discretionary power under the statute to relieve the creditor from sanction and allow him to recover part of the loan if it is considered equitable to do so. In that situation, the money owed by the debtor cannot be considered a liquidated sum which is a prerequisite for the presentation of a bankruptcy petition.

26.  For all the above reasons, the debtor contended there is a bona fide dispute whether the creditor was a money lender operating without a licence and in breach of other provisions of the MLO. The judge was wrong to proceed on the basis that he could not possibly demonstrate a bona fide dispute on substantial grounds if he was allowed to adduce evidence, and should have granted an adjournment to allow him to file evidence to substantiate his contention that the creditor was at the material time a money lender. She was wrong to think that he had sat on the petition and failed to appreciate that he was under pressure of time and had difficulties in locating documents.

27.  We are not persuaded that the judge had made an error in law in §7(2) of the Judgment. She did not say that the small number of loans in itself was the determining factor. Her remarks in §7(2) must be read in the context of the present case. She was critical of the debtor’s conduct in failing to make use of the time since the service of the petition three weeks ago and use his best endeavours to produce sufficiently precise evidence which is believable to demonstrate a bona fide dispute of the debt (§6). We do not think she was in error in this regard. We have rejected the debtor’s attempt to adduce further evidence on his alleged discovery one week before the hearing.

28.  If evidence were allowed to be adduced, the only matters his solicitor could point to in support of the money lender contention were that there was a loan for $9.8 million in 2014 at an interest rate of 2% per month (§7(1)) and that the creditor had lent money to the debtor and his friend (§7(2)), which the judge did not regard as sufficient to raise an arguable issue of law. The judge had also considered the debtor’s conduct in negotiating with the creditor for settlement, which she regarded as inconsistent with his having a money lender’s defence (§7(3)). We have rejected the debtor’s attempt to adduce evidence on the information he acquired from his business associate a week before the hearing, and any security document(s) for the loan.

29.  As apparent from the cases mentioned above, whether a person is a money lender in relation to a particular transaction is highly fact-sensitive. Each case must depend on its own facts and it is always a question of degree, as the debtor also recognizes. Whilst the number of loan transactions by the lender may not be the determining factor, the cases do support the proposition that a degree of repetition, system and continuity about the loan transactions may tend to establish a business of money lending. That was what the judge would appear to have in mind in making the observation in §7(2) that the small number of loans in itself did not make the creditor a money lender within the meaning of the MLO.

30.  The judge made an assessment on the basis of the submissions of the debtor’s solicitors mentioned in §7 that it is unlikely the debtor would be able to make out an arguable case that the creditor was a money lender. For this reason, she declined to grant an adjournment to file evidence.

31.  We are not persuaded that the judge’s assessment was plainly wrong or outside the generous ambit within which a reasonable disagreement is possible. The matters relied on by the debtor on appeal arising from the loan agreement as indicia of a business do not take the debtor’s case any further, whether separately or cumulatively. In any event, the judge had already taken a number of those matters into consideration: the amount of the loan, an earlier loan in 2014, the period of lending to the debtor, and the interest rate. As her assessment cannot be impugned, there is no basis for the Court of Appeal to interfere with her exercise of discretion in refusing an adjournment and making a bankruptcy order.

32.  We therefore dismiss the debtor’s appeal. There is no dispute that costs should follow the event. We make an order that the debtor is to pay the creditor’s costs of this appeal. Having considered the creditor’s statement of costs for summary assessment, we assess reasonable costs of this appeal for the creditor at $88,094. We give leave to the creditor to withdraw such sum from the amounts paid into court by the debtor as security for costs to meet the costs awarded against him.