LUK HING CAPITAL LTD v. LEE CHEUK YIN, JIMMY

HCA 1137/2022

[2023] HKCFI 3004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1137 OF 2022

____________________

____________________

______________

DECISION

______________

1.  On 17 April 2023, Master Elizabeth Cheung, inter alia, granted the defendant unconditional leave to defend in a summary judgment application. The plaintiff now seeks to appeal against the Master’s order, and to obtain summary judgment as well as to strike out the defendant’s counterclaim filed on 18 November 2022.

A.  THE PLAINTIFF’S CLAIM

2.  According to the plaintiff,

(1)  it is a licensed money lender under the Money Lenders Ordinance (Cap 153) (“MLO”);

(2)  on 31 October 2018, the plaintiff lent to the defendant a sum of HK$3,450,000 subject to the terms and conditions of a loan agreement dated 22 October 2018;

(3)  the defendant failed, refused and/or neglected to pay to the plaintiff the indebtedness on 30 June 2022;

(4)  despite demands, the defendant failed, refused and/or neglected to repay the outstanding indebtedness to the plaintiff in full;

(5)  as at 31 July 2022, the defendant was indebted to the plaintiff a total sum of HK$4,743,041.08 with interest on HK$3,450,000 at the rate of 10% per annum from 1 August 2022 until payment in full.

3.  In the alternative, the plaintiff advances a claim against the defendant based on unjust enrichment for the return of HK$3,450,000 with interest on the ground that there was a total failure of consideration.

4.  The writ herein was issued on 2 September 2022.

B.  THE DEFENDANT’S DEFENCE AND COUNTERCLAIM

5.  According to the Amended Defence and Counterclaim dated 18 November 2022, the defendant’s position is as follows:

(1)  the defendant admitted that the plaintiff had lent him a sum of HK$3,450,000 (paragraph 6);

(2)  the loan agreement is not enforceable against the defendant because (a) no note or memorandum in writing of the loan agreement was made in accordance with section 18(2) of the MLO was signed personally by the defendant within 7 days after the making of the loan agreement; (b) the defendant did not receive a copy of the loan agreement and/or any copy of the note or memorandum in writing of the loan agreement signed personally by the defendant; (c) no summary or provisions of Parts III and IV of the MLO was provided to the defendant (paragraph 6);

(3)  in around or at least by April 2019, the term(s) of the repayment was not followed and/or was revised as agreed by the parties in writing in that the defendant was no longer required to pay the whole amount of indebtedness but the defendant was required to pay by way of various instalments to the plaintiff’s designated and/or related company (橫琴陸慶樺霖文化產業投資有限公司) (“P’s Related Company”) with the first two tranches of payment in the total amount of RMB 400,000 made in around April 2019 (paragraph 7(b));

(4)  the defendant via his affiliates repaid HK$3,792,588 as principal and interest to the plaintiff via P’s Related Company (paragraph 7(c));

(5)  the plaintiff is not entitled to the repayment of the indebtedness (paragraph 10A);

(6)  in the alternative, there was no failure of consideration given that the defendant had made repayment to the plaintiff through D’s Related Company and the defendant has changed its position (paragraph 10B);

(7)  in the further alternative, even if there was any unjust enrichment, the plaintiff is estopped from claiming the indebtedness against the defendant (paragraph 10C);

(8)  the defendant counterclaims against the plaintiff for a declaration that the loan agreement is not enforceable as against the defendant (paragraphs 15-16).

C.  ORDER 14 APPLICATION AND DEFENDANT’S AFFIRMATION

6.  On 3 January 2023, the plaintiff took out a summons to seek summary judgment and to strike out the defendant’s counterclaim on the grounds that it discloses no reasonable cause of action against the plaintiff, is scandalous, frivolous or vexatious, may prejudice, embarrass or delay the action and/or is otherwise an abuse of the process of the court.

7.  In opposing the plaintiff’s summary judgment application, the defendant filed an affirmation dated 15 February 2023.  At paragraphs 11 and 12 of his affirmation, the defendant stated, inter alia, (1) as early as late 2018, the plaintiff and the defendant had an understanding that the repayment of the loan should be made to P’s Related Company, (2) an agreement known as 企業形象策劃和服務協議 (“the Consultancy Agreement”) was entered into to provide a proper basis for P’s Related Company to receive the repayment of loan from the defendant or his affiliates on behalf of the plaintiff.

D.  WHETHER DEFENDANT HAS SHOWN CAUSE AGAINST ORDER 14 APPLICATION

8.  The applicable principles on summary judgment are trite and have not been subject to any dispute between the parties.  In this section, I will examine whether the defences put forward by the defendant are credible or believable.  I bear in mind that the court is not to embark on a mini-trial on affidavit evidence.

D1.    The Non-Compliance of the MLO Defence

9.  Section 18(1) of the MLO provides:

“No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless –

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.”

10.  Section 18(2) of the MLO provides:

“The note or memorandum shall contain all the terms of the agreement and in particular shall set out—

(a) the name and address of the money lender;

(b) the name and address of the borrower;

(c) the name and address of the surety, if any;

(d) the amount of the principal of the loan in words and figures;

(e) the date of the making of the agreement;

(f) the date of the making of the loan;

(g) the terms of repayment of the loan;

(h) the form of security for the loan, if any;

(i) the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2; and

(j) a declaration as to the place of negotiation and completion of the agreement for the loan.”

11.  The plaintiff submits that the loan agreement would constitute the “note or memorandum” for the purpose of section 18(1)(a) of the MLO.  Nonetheless, even assuming the plaintiff’s submission were correct, it seems to me that there is a triable issue on (a) whether the defendant was given a copy of any note or memorandum at the time of signing, and (b) if so, whether there was included in or attached to such copy a summary of such provisions of Parts III and IV of the MLO, pursuant to section 18(1) of the MLO.

(1)  The defendant has stated in his pleading and his affirmation that he was never provided with a copy of the loan agreement or the “note or memorandum”, or the summary of the provisions of the MLO.

(2)  On behalf of the plaintiff, Mr Choi Siu Kit (“Mr Choi”) in paragraph 26 of his first affirmation said that according to the plaintiff’s books, all requirements of section 18 of the MLO have already been complied with.   The same statement was repeated in paragraphs 6 and 8 of Mr Choi’s second affirmation.  Other than these statements, the plaintiff has not produced anything to show that the defendant did in fact receive the documents referred to in section 18(1) of the MLO. 

(3)  In these circumstances, I consider the defendant’s denial of receipt of the relevant documents to be credible.

(4)  I further note that the evidence produced by the plaintiff relating to the circumstances under the defendant signed the loan agreement is not altogether clear.  In Mr Choi’s second affirmation, he exhibited a document headed “Confirmation of explanation of loan agreement by money lender”, in which it was recorded, inter alia, that Mr Choi had explained the terms of the loan agreement to the defendant at the plaintiff’s office in Shun Tak Centre on 22 October 2018.  Such a record appears to be different from Mr Choi’s evidence at paragraph 15 of his first affirmation that the defendant attended the office of JC Legal to sign the loan agreement and it was Mr Clement Wong who explained the contents of the loan agreement to the defendant.

12.  Further, I note that the plaintiff accepts that there is non-compliance of section 18(2)(f) of the MLO given that the actual drawdown of the loan only happened on 31 October 2018 and the loan agreement was dated and signed in advance.

13.  The plaintiff submits that the court should exercise its discretion to enforce the loan agreement under section 18(3) even if the defendant has raised a triable issue as to non-compliance of section 18.  I disagree.  To exercise its discretion under section 18(3) of the MLO, the court needs to take into account all the facts and circumstances of the particular case, including whether the defendant was given the necessary documents at the relevant time.  The court is not in a position to exercise its discretion when there is a dispute as to the circumstances which are to be taken into account in the exercise of that discretion, and when the dispute cannot be resolved summarily: Vinson Finance Limited v Chu Qingzhu et al [2022] HKCFI 449 at §24 (Cheng J).

14.  For the above reasons, I consider that the defendant has demonstrated a credible defence under section 18(1) of the MLO.

D2.    The Repayment Defence

15.  It is the defendant’s case that (1) as early as late 2018, the plaintiff and the defendant had an understanding that the loan should be repaid to P’s Related Company and the Consultancy Agreement was entered into to provide a proper basis for the P’s Related Company to receive the repayment of the loan on behalf of the plaintiff, (2) in around or at least by April 2019, the defendant made repayments by himself or through his affiliates to P’s Related Company, and (3) the defendant via his affiliates repaid HK$3,792,588 as principal and interest to the plaintiff via P’s Related Company.

16.  The defendant relies on, inter alia, the following matters to support his defence: (1) on 6 March 2019, Hanky Wong (Mr Choi’s assistant) asked the defendant (via the defendant’s brother) by WeChat to pay to P’s Related Company the invoice issued, (2) on 20 March 2019, Hanky Wong liaised with the defendant’s brother by WeChat for the repayment of the loan by issuing the necessary invoices, (3) on 17 April 2019, Mr Choi sent various invoices from P’s Related Company and asked the defendant (via the defendant’s brother) by WeChat to first settle RMB 400,000, (4) on 23 April 2019, Mr Choi asked by WeChat if RMB 400,000 could be paid to his company, (5) on 26 November 2019, Hanky Wong asked the defendant (via the defendant’s brother) by WeChat whether there would be payment of interest on RMB 400,000, (6) on 28 November 2019, Hanky Wong asked the defendant (via the defendant’s brother) whether the payment of interest should be counted towards the monthly payment of RMB 200,000, (7) after the defendant paid RMB 400,000 on 28 November 2019, Hanky Wong sent to the defendant (via the defendant’s brother) 4 documents showing receipt of RMB 400,000 by P’s Related Company, (8) on 11 June 2020, Hanky Wong confirmed that the Consultancy Agreement was made to allow the plaintiff to collect repayment of the loan in the form of “consultancy fee”.

17.  The defendant submits that the above matters are supported by documentary evidence.  In particular, in relation to the matters in (5) and (6) in the previous paragraph, the defendant submits that since no interest would be payable under the Consultancy Agreement, the discussions in November 2019 were clearly referring to repayment of the loan by the defendant to the plaintiff.

18.  The plaintiff has adduced rebuttal evidence to seek to respond to the defendant’s case and some of the aforesaid matters relied upon by the defendant.  The plaintiff further submits that the defendant has not provided sufficient particulars as to how the alleged understanding came to be reached and that the subsequent exchanges in the WeChat records between the parties might not be relevant. 

19.  Having considered the materials before the court, it seems to me that the defendant’s case on the repayment defence cannot be said to be incredible or lacking in particulars, and raises a triable issue. There are factual disputes relating to the inter-relationship between the loan agreement and Consultancy Agreement.  Such disputes cannot be resolved at this stage without cross-examination of the relevant individuals involved in the transactions. 

D3.    Other Defences

20.  Having come to the view that the defendant has raised triable defences as discussed in Sections D1 and D2 above, the matter must go to trial and it is strictly unnecessary for me to consider further whether the defendant’s defences on change of position and estoppel raise triable issues.  In any event, as far as the estoppel defence is concerned, I am unable to say, contrary to the plaintiff’s submissions, that the defence is devoid of particulars and incapable of belief.

E.  WHETHER COUNTERCLAIM SHOULD BE STRUCK OUT

21.  The plaintiff accepts that (1) the defendant’s counterclaim is based on his MLO defence and (2) if the court takes the view that the MLO defence gives rise to a triable issue, the counterclaim cannot be struck out.  As I have come to the view that the defendant has demonstrated a credible defence under section 18(1) of the MLO, the counterclaim cannot be struck out.

F.  DISPOSITION

22.  For the above reasons, the plaintiff’s appeal must be dismissed.  The only remaining issue is to consider whether I should give the defendant unconditional leave to defend (as the learned Master did), or dismiss the plaintiff’s summary judgment application.

23.  It is well-established that a summary judgment application may be dismissed if it appears to the court that the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend: RHC O.14, r.7(1); Hong Kong Civil Procedure 2024 Vol 1 para 14/7/3.  Further, I bear in mind that (1) the mere fact that a line of defence was known to a plaintiff does not mean that he should have known that it was not appropriate to proceed by way of application for summary judgment, and (2) a wrong judgment in proceeding by way of Order 14 does not necessarily call for sanction in the same manner as an abuse of the procedure: Greater China Capital Inc v Gbtimes Ltd [2018] 1 HKLRD 210 at §8 (Lam VP).

24.  For the following reasons, it seems to me that the plaintiff knew about the entirety of the defendant’s MLO defence prior to the plaintiff’s taking out of the Order 14 summons on 3 January 2023.

(1)  The MLO defence first appeared in the defendant’s Defence and Counterclaim dated 13 October 2022. 

(2)  After seeing the defendant’s pleading, the plaintiff obtained leave on 7 November 2022 to amend its Statement of Claim to, inter alia, plead in the alternative that it would be inequitable that the loan agreement should be held not to be enforceable pursuant to section 18(3) of the MLO.  The Amended Statement of Claim was filed on 4 November 2022. 

(3)  The defendant filed his Defence and Counterclaim on 18 November 2022 to, inter alia, dispute that the loan agreement should be held enforceable despite the plaintiff’s breaches of the MLO.

(4)  At the hearing, it was explained on behalf of the plaintiff that the MLO breaches were thought to be technical and the plaintiff therefore sought to amend the Statement of Claim to plead section 18(3) of the MLO.  As mentioned earlier, it is inappropriate to exercise the discretion under section 18(3) of the MLO in the present case because of the factual disputes.  It seems to me that the plaintiff’s amendment of the Statement of Claim was itself an acknowledgement of the existence of the MLO defence, which, according to my view, would entitle the defendant to unconditional leave to defend.  It is clear that the plaintiff had fully considered its legal position before deciding to take out the summary judgment application.

25.  Accordingly, I dismiss the plaintiff’s summary judgment application. 

26.  As to costs, I see no good reason why I should not exercise my discretion to order the plaintiff to be responsible for the costs of the summary judgment application, including those costs incurred before the learned Master.  I set aside the Master’s costs order dated 17 April 2023 that the costs of and occasioned by the plaintiff’s summons of 3 January 2023 be in the cause.  I make an order nisi that the costs of and occasioned by the summary judgment application and this appeal be paid by the plaintiff to the defendant forthwith to be summarily assessed on paper.

27.  I further direct (1) the defendant should lodge and serve a statement of costs within 7 days from the date of this decision, (2) the plaintiff should lodge and serve written submissions of not more than 3 pages to set out any disagreement on the defendant’s costs within 7 days thereafter, and (3) the defendant should lodge and serve written submissions in reply of not more than 3 pages within 7 days thereafter.  The time referred to in the above directions should include Saturdays and Sundays.