SHUN ON FINANCE LTD v. WONG FUNG KWAN AND ANOTHER

DCMP 1428/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1428 OF 2016

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DECISION ON COSTS

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INTRODUCTION

1.  Before me are the following two matters:-

(1)   The plaintiff’s originating summons dated 12 May 2016 against the original defendant pursuant to Order 83A and Order 88 of the Rules of District Court (Cap 336H) for, inter alia, payment of HK$657,698.63 and interest under a second mortgage between the plaintiff as lender and the original defendant as borrower and possession and sale of the property known as Flat B, 2^nd Floor, Po Wah Court, 432-438 Un Chau Street, Kowloon, Hong Kong (the “Property”); and

(2)   An application by Madam Wong Kin Hing (the “intended 2^nd defendant”), the original defendant’s mother, by summons dated 6 February 2017 under Order 15 rule 6(2) and Order 16 rule 4(4) to be joined as the 2^nd defendant to the originating summons (the “joinder application”).

2.  At this hearing, I gave the following directions, which were not much in dispute:- 

(1)   In respect of the intended 2^nd defendant’s summons dated 6 February 2017,

(a)   She be joined as the 2^nd defendant to the originating summons.

(b)   The original defendant be named as the 1^st defendant.

(c)   The plaintiff do serve on the 2^nd defendant a sealed copy of the originating summons and the plaintiff’s affirmations within 7 days from today.

(d)   The 1^st defendant do serve on the 2^nd defendant her affirmation within 7 days from today.

(2)   In respect of the originating summons,

(a)   The originating summons shall proceed as if begun by writ.

(b)   The plaintiff shall file and serve its Statement of Claim against the 1^st and 2^nd defendants within 28 days from today.

(c)   The 1^st and 2^nd defendants shall file and serve their Defence and Counterclaim, if any, within 28 days thereafter.

(d)   The plaintiff shall file and serve its Reply and Defence to Counterclaim, if any, within 28 days thereafter.

3.  The only remaining issue is costs as between the plaintiff and the 1^st and 2^nd defendants.

PROCEDURAL BACKGROUND

4.  The plaintiff issued the originating summons on 12 May 2016 with supporting affirmation.  On 7 October 2016, the 1^st defendant filed a substantive affirmation to oppose the plaintiff’s originating summons.  Such a summons would be first heard by Master for directions.  The first hearing took place on 11 October 2016 before Master.  At the hearing, the Master adjourned the originating summons for a substantive argument with 3 hours reserved, and gave leave to the plaintiff to file affirmation in reply. Accordingly, the 1^st defendant filed the affirmation in reply on 2 December 2016, and the present hearing was fixed.  

FACTUAL BACKGROUND

Background not in dispute

5.  The factual background of the present case is this.  The plaintiff is a money lender licensed under the Money Lenders Ordinance (Cap 163) (the “MLO”). The 1^st defendant has been the registered owner of the Property since 30 April 2007.  On 16 November 2015, the 1^st defendant signed a loan agreement (the “Loan Agreement”) and an offering letter (the “Offering Letter”).  By these documents, the plaintiff agreed to advance a loan of HK$600,000 to the 1^st defendant, with a monthly flat interest rate of 2.5% or an annual interest rate of 30%.  The loan and interest were to be repaid by 12 monthly instalments.  The first 11 instalments were to be payments of interest only. Further, if the 1^st defendant would wish to redeem the Property earlier, she would have to pay an early redemption fee of HK$60,000.

6.  On the same day, the 1^st defendant signed a second mortgage (the “Second Mortgage”) as security of the loan.  By the Second Mortgage, the 1^st defendant charged the Property as security for the due payment of all moneys due to the plaintiff.  Expenses including legal expenses incurred by the plaintiff shall form part of the secured indebtedness.  Further, the plaintiff may at its discretion raise or reduce the interest rate payable on the loan.

7.  On 16 November 2015, Messrs Au Thong & Tsang (“ATT”), the solicitors for the plaintiff, drew a cheque in the amount of HK$599,550 payable to the 1^st defendant.  The loan was drawn, but was not repaid.  Thus, the plaintiff issued the present originating summons.

8.  The above are not in dispute.  They are all evidenced by contemporaneous documents.

1^st Defendant’s defence and evidence

9.  The 1^st defendant deposed in her affirmation in opposition that well before the signing of the Loan Agreement and the Offering letter, in late October 2015, she was approached by a Ms Chu alleged to be from Hang Seng Bank, alleging that they could help the 1^st defendant to apply for a loan interest rate repayment plan with Hang Seng Bank at an attractive interest rate in respect of another property also registered in the name of the 1^st defendant.  She expressed interest.  Ms Chu then asked her to visit one Well Done Financial Planning Center (“Well Done Center”) the next day.  On 27 October 2015, the 1^st defendant accordingly attended Well Done Center and met one Mr Cheung and one Mr Law.  Mr Cheung told her that he could help her to successfully apply for a first mortgage from Hang Seng Bank for a mortgage loan of HK$3,000,000 at an interest rate of as low as 1.5% in respect of a property in Lai Bo Garden also registered in the name of the 1^st defendant.  She expressed interest.  Mr Cheung then took her a money lender named Fine Talent Finance Limited (“Fine Talent”).  Mr Cheung told her that both Well Done Center and Fine Talent belonged to the group of Hang Seng Bank.  Mr Cheung told her that she had to borrow HK$1,300,000 from Fine Talent as a guarantee money to satisfy Hang Seng Bank that she would be able to repay.  In gist, Mr Cheung told her that all these were part of the process of the application to Hang Seng Bank.  As a result, she signed some documents, and eventually was on 4 November 2015, she was given a cheque of HK$1,300,000.  Mr Law took her to cash the cheque and asked her to give him the cash as a guarantee money.  She did so, thinking that this was part of the application procedure.

10.  The 1^st defendant went on to depose that on 14 November 2015, Mr Law telephoned the 1^st defendant again, saying that he could help her to apply for another low interest loan from Hang Seng Bank again this time in respect of the Property.  He said that the application process would be similar to the previous one, and that the guarantee money this time would be HK$600,000.  The 1^st defendant thought that there was no harm.  On 16 November 2015, she followed Mr Law to ATT’s office.  There, she signed the Loan Agreement and the Second Mortgage.  She now alleged that these documents were not adequately explained and interpreted to her, although she did not raise at the ATT’s office that she did not understand the contents.  After signing all these, ATT gave her a cheque of HK$599,550.  She was told that the HK$450 was for payment of expenses charged by the government.  Again, Mr Law and this time also one Mr Cheung of the plaintiff took her to a bank to cash the cheque.  Upon request, she then gave the cash to them, thinking, again, that this was part of the process.

11.  She also deposed that for the loans she borrowed from Fine Talent and the plaintiff, Mr Law and Mr Cheung represented to her that she did not have to repay from her own pocket, but instead they would be repaid by using the loans to be granted by Hang Seng Bank.  In reliance on such representation, she has not repaid any of the loans.

12.  Finally, she deposed that since 16 November 2015, she had heard nothing from Well Done or the plaintiff.  Nor was she able to reach Ms Chu, Mr Law or Me Cheung.  Well Done Center’s office was vacated.  The plaintiff then reported the matter to the police.

13.  It remains for me to point out that though educated up to Form 5 in 1991, the 1^st defendant failed all the subjects including both Chinese Language and English Language (except typewriting) in the public examination in 1991.  That said, the 1^st defendant has not gone to so to say that she was illiterate.

14.  The 1^st defendant’s defence in gist, from the above evidence, is that:-

(1)   The Loan Agreement and the Second Mortgage were supported by no consideration because the 1^st defendant never received the loan thereunder.

(2)   The Loan Agreement and the Second Mortgage were procured by undue influence and misrepresentations by Well Done Center, Mr Law and Mr Cheung.

(3)   The Loan Agreement and the Second Mortgage were not fully or adequately explained to the 1^st defendant.

(4)   The Loan Agreement and the Second Mortgage were unenforceable by virtue of their various breaches of the MLO, including:-

(a)   Section 21: Clause 7 of the Loan Agreement and the Offering Letter provides that an early redemption fee of HK$60,000 would be charged.

(b)   Section 22: The Third Schedule of the Second Mortgage conferred the right on the plaintiff to vary the interest rate.

(c)   Section 24: a monthly flat rate of 2.5% would be equivalent to an annual rate of 65.48%.

(d)   Section 27: the 1^st defendant was required to pay expenses in connection with preparation and administration of the Second Mortgage.

(5)   The 1^st defendant also alleged that there was a collusion as defined by section 27(3) and (4) of the MLO between the plaintiff and Well Done.

REMINDER TO PRACTITIONERS

15.  The plaintiff contended that but for the joinder application, which it did not oppose, he would still proceed with the present hearing as a substantive hearing, taking the view that the 1^st defendant’s defence was not believable.  I disagree.  One can see that the disputes between the parties included factual disputes, notably, the interest rate (sometimes for which the court has to be assisted by experts) and whether there were any operative misrepresentations by Well Done Center, Mr Law and Mr Cheung. Although the 1^st defendant may look silly on the face of it, one cannot say that her evidence is not believable.  It is clear that the court has to test the evidence by cross-examination.  (That said, I add a footnote that the particulars of the alleged misrepresentations the 1^st defendant wished to rely on were not clear from the evidence, and pleadings are desirable.)  Insofar as legal disputes were concerned (for example, the effect of the provisions of the Loan Agreement and the Second Mortgage), it would obviously be better dealt with in one go with the factual disputes.

16.  In other words, from the 1^st defendant’s affirmation in opposition filed on 7 October 2016, the legal advisers acting for the parties must have been aware that the originating summons could not be disposed of on affidavit evidence only.  This could not be changed whatever reply evidence the plaintiff was going to file.  At the first hearing, they should have informed the Master accordingly, and sought appropriate directions from the Master, rather than taking it as going through the motion to propose or accept inappropriate directions that would not facilitate the resolution of the disputes expeditiously and economically.  Both parties confirmed to me today that at the first hearing, the 1^st defendant did submit to the Master that given the factual disputes, the originating summons should proceed as if begun by writ, but the plaintiff objected.  As such, the Master gave standard directions as it were. 

17.  Practitioners are reminded that they should not just rely on the Master to read the papers and let the Master decide.  As I understand, such originating summonses are often all fixed for a certain time slots for their first hearings, and the Master in charge simply cannot consider all the papers in detail.  It is understandable that if a party proposes certain non-standard directions but the other party opposes, in the shortness of time of the hearing, the Master will then just give standard directions.  Thus, parties’ sensible submissions at the first hearing are of paramount importance. 

18.  In the present case, this was particularly so because the 1^st defendant’s affirmation was filed on 7 October 2016 4:30 pm, which was a Friday, and the hearing took place on 10 October 2016, the working day immediately thereafter.  The Master could not be expected to read through the papers in details in such a short time, among other originating summonses and matters.  The plaintiff, having considered the 1^st defendant’s affirmation before the first hearing, should have sensibly agreed to the 1^st defendant’s position at the first hearing.  (I should add that the plaintiff did not complain about the limited time for them to consider the 1^st defendant’s affirmation before the first hearing, and in any event, such complaint would not stand because the plaintiff even today would still have taken the same position but for the joinder application.)  Had the plaintiff been sensible, today’s hearing could have been saved.  Therefore, as between the plaintiff and the 1^st defendant, I shall order that costs of today’s hearing be to the costs with certificate for counsel, summarily assessed to be HK$40,000.

JOINDER APPLICATION

19.  In respect of the intended 2^nd defendant’s joinder application, she was the 1^st defendant’s mother.  The intended 2^nd defendant alleged that she and her late husband paid all the money for the acquisition of the Property, and the 1^st defendant was holding the Property on trust for the intended 2^nd defendant.  I have no doubt that she should be joined as the 2^nd defendant, since the outcome of the originating summons will have direct effect on her if she would be found to be the beneficial owner of the Property as alleged.  The plaintiff sensibly did not oppose the joinder application.  Although despite the intended 2^nd defendant’s repeated chasers, the plaintiff’s indication that it did not oppose the joinder application came only the day before the present hearing, given that the joinder application was taken only lately on 6 February 2017, I think costs be in the cause is an appropriate costs order.

COSTS ORDER

20.  In the circumstances,

(1)   In respect of the joinder’s application, I order that costs be in the cause. 

(2)   In respect of the originating summons, I order that:-

(a)   As between the plaintiff and the 1^st defendant, the plaintiff shall pay the 1^st defendant costs of today’s hearing with certificate for counsel summarily assessed to be HK$40,000.

(b)   Costs of the originating summons (including for the avoidance of doubt, the 2^nd defendant’s costs, if any) be in the cause.