YELSEN FINANCE HOLDINGS LTD. v. CHAN MEI SUEN

CACV 170/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 170 OF 1999

(ON APPEAL FROM HCA 7506 OF 1998)

------------------------------------------------------

----------------------

J U D G M E N T

----------------------

Mayo, J.A.:

1. This is an appeal from the Judgment of Waung, J. when he dismissed the Plaintiff's claim on a money lending transaction.

2. The Plaintiff was a licensed money lender. By an agreement dated 27th November 1997 it lent $1 million to Miss Chan, ("the Debtor") and by a guarantee of the same date the Defendant who is the Debtor's sister guaranteed the due performance of the agreement.

3. The Debtor defaulted under the agreement and the Plaintiff called upon the Defendant to make good the terms of the guarantee. She declined to do so hence this litigation.

4. In the statement of claim the Plaintiff claims they were entitled to recover from the Defendant the amount of principal and interest owed to them by the Debtor.

5. The Defendant took issue on this in her defence. She claimed that s.18(1) of the Money Lenders Ordinance, Cap. 163 ("the Ordinance") had not been complied with as she had attended at the office of the Plaintiff's manager, Mr. Lai, to sign the guarantee prior to her sister attending at the office to sign the agreement. She also took exception to the rate of interest charged on the loan. The annual rate was 54% which she claimed in the circumstances was extortionate as it exceeded 48% being the percentage referred to in s.25 of the Ordinance.

6. The Judge summarised the issues he had to resolve at p. 7 of the appeal bundle:

"The issues before me are four:

(i) whether the Plaintiff provided copies of the Agreement and the Guarantee to the Defendant Guarantor in accordance with section 20(1) of the Money Lenders Ordinance;

(ii) whether the Agreement amounts to a note or memorandum in writing referred to in section 18(1);

(iii) whether the Agreement was signed by the Debtor after the Defendant Guarantor signed the Guarantee and therefore was contrary to section 18(1) of the Ordinance; and

(iv) whether the Agreement and the Guarantees are extortionate given that the annual rate of interest was 54% and thus should be re-opened by the court."

7. The Judge essentially confined himself to resolving the first and third issues.

8. After hearing evidence from Mr. Lai, the Debtor and the Defendant, he was satisfied that the version of the evidence given by the two sisters was the true version and that Mr. Lai had not been giving truthful evidence. After summarising the evidence of the witnesses, the Judge came to a conclusion in this way:

"Now, there is as a start, a conflict of the evidence which could only be resolved by cross-examination. I had seen Mr. Lai's giving evidence. I had also seen the two sisters giving evidence and being cross-examined extensively by Mr. Liang. I have no hesitation in accepting the evidence of the two sisters. I prefer their evidence. They gave their evidence well. I am particularly impressed by the Defendant who impressed me as an honest and reliable witness. I have every reason to believe that it was because of her inability to get time off from work that she went to the Plaintiff's office at the time between 1:00 p.m. and 2:00 p.m. It would be an outrageous lie for the Defendant to put forward this, when for all one knows Mr. Lai could well be away during that time. If such allegation is untrue, there could be evidence to show that Mr. Lai could not possibly in the office between the hour of 1:00 p.m. and 2:00 p.m. on 27th. But be that as it may, I have no doubt that from all the material presented to me, specially from the oral evidence of the two witnesses of the Defendant that their version is to be preferred. I accept, of course, that there is material which seems to contradict the Defendant's case. There is an acknowledgement of receipt, for example, which was signed by Ms. Chan, the Defendant acknowledgement receipt of copies of the documents. She gave a very good explanation which I accept that she was told by Mr. Lai that you better sign this because the documents must all be signed by the Borrower and if the Defendant did not sign the receipt, then she has to come back again after the Borrower had signed, so she signed the receipt.

The acceptance of the evidence by this court of Ms. Chan's evidence that they were not there together, it seems inevitably to point also to the fact that the copies of the documents were not given to them as suggested by Mr. Lai. I also accept the evidence of the two Chans that the documents were not properly explained to the Chans."

9. S.18 of the Money Lenders Ordinance is couched in this form:

"18. Form of agreement

(1) 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.

(2) 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 (Amended 69 of 1988 s. 15)

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

(3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable. (Amended 69 of 1988 s. 15)"

and s.20 of the Money Lenders Ordinance is couched in this form:

"20. Duty of money lender to give information to surety

(1) A money lender who makes any agreement for the loan of money in relation to which security is provided shall within 7 days after the making of the agreement give to the surety (if a different person from the borrower) -

(a) a copy of the note or memorandum in writing made under section 18(1);

(b) a copy of the security instrument, if any; and

(c) a statement in writing signed by or on behalf of the money lender showing -

(i) the total sum payable under the agreement by the borrower;

(ii) the various amounts comprised in that total sum with the date, or the mode of determining the date, when each becomes due.

(2) Without prejudice to subsection (1), a surety may at any time during the continuance of an agreement (whether made before or after the commencement of this Ordinance) in relation to which the security is provided require the money lender by notice in writing to furnish him with a statement in writing signed by or on behalf of the money lender showing -

(a) the total sum paid under the agreement by the borrower;

(b) the total sum which has become payable under the agreement by the borrower but remains unpaid, and the various amounts comprised in that total sum, with the date when each became due; and

(c) the total sum which is to become payable under the agreement by the borrower, and the various amounts comprised in that total sum, with the date, or the mode of determining the date, when each becomes due.

(3) Subsection (2) does not apply to a request made by a surety less than 1 month after a previous request under that subsection relating to the same agreement was complied with.

(4) If a money lender fails to comply with subsection (1) or a request to which subsection (2) applies he shall not be entitled, while the default continues, to enforce the security so far as provided in relation to the agreement."

10. The main problem which arises in this case relates to the failure to comply with s.18 of the Ordinance. I say this because it appears to be common ground that the Plaintiff did eventually receive a copy of the guarantee and agreement in June 1998. It is of course the case that this was subsequent to the commencement of the proceedings. The non-compliance with s.18 is more serious as s.18(3) only provides for waiver of the default if it considers it would be inequitable to decline to enforce the agreement.

11. The Judge did consider this. He concluded that it was a case where it would not be inequitable to decline to enforce the agreement.

12. Although there are twelve grounds of appeal they can conveniently be divided into three groups. Grounds one to seven put forward reasons why the Judge's findings of fact should be interfered with. Grounds eight and nine deal with the manner the Judge exercised the discretion reposed in him under s.18(3) of the Ordinance and the remaining grounds relate to the non-compliance with the requirements of s.20(1) of the Ordinance.

13. The first seven grounds of the appeal are as follows:

"(1) The learned Judge failed to take any or sufficient account of the evidence of Mr. Lai Fu Wing, General Manager of the Plaintiff, in particular, that the Plaintiff did provide copies of the Loan Agreement and the Guarantee to the Defendant and that the Loan Agreement was signed by the Debtor before the Defendant signed the Guarantee, which was not specifically challenged in cross-examination

(2) The learned Judge failed to take any or sufficient account of the Debtor's failure to give evidence as to where she was and precisely what she was doing at about 2.00 p.m. on 27th November 1997, the time she alleged the Defendant, her sister, went to the Plaintiff's office without her

(3) The learned Judge wrongly took into account the factor that there could be evidence to show Mr. Lai Fu Wing could not possibly be in the office between 1.00 p.m. and 2.00 p.m. on 27th November 1997 when the allegation whether he was not there or not there during that time was never specifically put to him in cross-examination

(4) The learned Judge failed to take any or sufficient account of the Defendant's evidence that she signed on the Loan Agreement expressly confirming that she had read and understood or been explained terms and conditions of the Loan Agreement

(5) The learned Judge failed to take any or sufficient account of the Defendant's evidence that she signed a statement expressly acknowledging receipt of copies of the Loan Agreement and the Guarantee

(6) The learned Judge failed to take any or sufficient account of the relationship of the Debtor and the Defendant and the fact that their evidence might be collusive for the purpose of avoiding liabilities

(7) The decision of the learned Judge that the Plaintiff did not provide copies of the Loan Agreement and the Guarantee to the Defendant and that the Loan Agreement was signed by the Debtor after the Defendant signed the Guarantee was against the weight of the evidence. The Plaintiff refers to Paragraphs (1) and (6) above"

14. In his submissions Mr. Liang for the Plaintiff accepts that he has considerable hurdles to surmount if he is to satisfy the Court of Appeal that it should interfere with findings of fact made by a trial Judge. He approaches the problem by submitting that the findings were contrary to the weight of the evidence. In this connection he places his reliance upon Aktieselskabet Dansk Skibsfinansiering v. Wheelock Marden & Co Ltd. & Ors. [1998] 3 HKC 153 at 179 and the notes in the 1999 Edition of the White Book appended to Order 59/1/141.

15. There is also a suggestion that the Judge himself entered into the arena in that he subjected Mr. Lai to a searching cross-examination and on the authority of Yuill v. Yuill [1945] P 15 at 20 allowed "his vision to be clouded by the dust of conflict". What needs to be borne in mind in this connection is that at the trial the Defendant was unrepresented. If justice was to be done it was necessary for the Judge to probe Mr. Lai's evidence. Mr. Liang has not demonstrated any impropriety on the part of the Judge nor has he given us any grounds to suggest that the Judge's impartiality was in any way compromised by his participation in the questioning of Mr. Lai.

16. So far as the main issue was concerned it largely boiled down to the simple question as to whether the two sisters attended Mr. Lai's office together or whether the Defendant went alone during her lunch hour and the Debtor attended alone later in the afternoon.

17. The main point relied upon by the Plaintiff was the Defendant's signature acknowledging that she had received copies of the agreement and guarantee. A perfectly plausible explanation was given by the Defendant for this and this was accepted by the Judge.

18. The Judge was fully entitled to make the findings of fact he did and I can see no reason why we should interfere with these.

19. Grounds eight and nine are as follows:

"(8) The learned Judge wrongly failed to exercise his discretion under Section 18(3) of the Money Lenders Ordinance, Cap. 163 ('the Ordinance') to determine whether in the circumstances it would be inequitable that the Guarantee, if it did not comply with Section 18 of the Ordinance, should be held not to be enforceable

(9) Had the learned Judge properly exercised his discretion under Section 18(3) of the Ordinance, even if the Loan Agreement was signed by the Debtor after the Defendant signed the Guarantee, he ought to have held that the Guarantee was enforceable having regard to the following circumstances: -

(i) The Debtor gave evidence that 3 weeks before 27th November 1997, she first asked the Defendant to be her guarantor for the loan in question and when she approached the Defendant, she told the Defendant about the terms of the loan

(ii) The Defendant gave evidence that when she signed the Loan Agreement and the Guarantee, she did not care about the interest rate although she had been told by the Debtor that she was to be the guarantor for the Debtor's loan for HK$1 million

(iii) The Defendant gave evidence that before she signed the Loan Agreement and the Guarantee at the Plaintiff's office, she took a glance at the Loan Agreement and the Guarantee and saw her name and address and the loan amount and no one prevented her from reading the Loan Agreement and the Guarantee

(iv) The Defendant gave evidence that she signed a statement in the Loan Agreement confirming that she had read and understood or been explained terms and conditions of the Loan Agreement and she understood that statement

(v) The Loan Agreement was in any event signed by the Debtor on the same day before the money was lent."

20. Probably the most important factor which we would have weighed in the Judge's mind in considering the overall circumstances was the rate of interest being charged on the loan. At 54% the amount was only 6% less than what the Ordinance prescribed as being illegal. It was undoubtedly a harsh bargain. When this is taken in conjunction with the way in which the Plaintiff chose to conduct this litigation including what must have appeared to the Judge as being Mr. Lai's mendacity it is not surprising that the Judge exercised his discretion in the way he did. I do not think we would be justified in interfering with the way in which the discretion was exercised.

21. The remaining grounds deal with s.20(1) point.

22. These grounds become redundant once it is held that there has been non-compliance with s.18 and the Judge considered that it would not be inequitable to decline to enforce the agreement.

23. In my view this appeal should be dismissed.

Rogers, J.A.:

24. There were two limbs to this appeal. One was the appeal as to fact and the other, the appeal as to the exercise of the Judge's discretion under section 18(3).

25. As to the question of fact, I entirely agree. I see absolutely no ground for intervening with the Judge's decision. This was a short case. It lasted two days. The second day was a week or so later than the first day. The Defendant and the Defendant's only witness gave evidence on the second day. The Judge gave his judgment on the second day. It was a straightforward question of which party the Judge believed. As has already been said by Mayo, J.A., it has been suggested that the Judge descended into the arena and his eyes were blinded with the dust of the conflict. Having read the transcript, except of course the parts which were in Chinese, I can only say that, in my view, the Judge conducted the case in all respects in a proper manner. He was faced with a litigant in person. Naturally, he had to control the proceedings in a different way, from that in which he would have done had the litigant been legally represented. Examples in the transcript can show that the litigant had little understanding of the procedures of the Court.

26. The remaining point is that the Judge should have exercised his discretion to allow the enforcement of the security notwithstanding a breach of section 18(1). The Judge's reasoning on this point is terse. But the only point made is that the Judge should have permitted enforcement because the Defendant showed no prejudice caused by the failure to comply with section 18(1). That indeed is a factor but it is not an overriding factor. One point which did emerge from the transcript is that the Defendant was apparently unaware, prior to signing the documents which were signed, as to what her liabilities would be if the debtor defaulted on a loan.

27. For the reasons which have been given, I too would concur that I see no reason for interfering with the Judge's discretion in this matter. I too would dismiss this appeal.

Godfrey, J.A.:

28. I agree with both judgments and would add only this.

29. Although the Judge gave no reasons for his rejection of the plaintiff's case under section 18(3) of the Money Lenders Ordinance, Cap. 163, that, in all the circumstances, it would be inequitable that the agreement should be held not to be enforceable, there was, in fact, this good reason for that rejection, i.e., that the evidence of the plaintiff's manager Mr. Lai, as to the events which had happened, was itself rejected by the judge because he disbelieved it. That being so, the judge was clearly entitled to reject the plaintiff's case under section 18(3).

30. In the result, the plaintiff's appeal will be dismissed with costs.