GAIN EAST INVESTMENTS LTD v. CHAN PO WING

HCA 2211/2015

[2019] HKCFI 3055

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2211 OF 2015

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BETWEEN

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DECISION

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1.  On 10 September 2019, Master J Wong dismissed the plaintiff (“P”)’s application for summary judgment and gave unconditional leave to defend to the defendant (“D”). On 23 September 2019, P lodged an appeal against the master’s decision (“P’s appeal”).

2.  P is claiming against D for the outstanding principal and interest under a written loan agreement dated 25 March 2013 (“the Loan Agreement”).  P claims that D has breached the Loan Agreement by only making partial repayment and failing to repay the outstanding balance of the loan together with interest in accordance with the terms of the Loan Agreement.  As pleaded in the amended statement of claim, P’s case is that D has made repayment of HK$857,500 in total from 10 May 2013 to 6 July 2015.  As at 21 November 2018, the outstanding principal sum owed by D was HK$1,736,177.82, and the outstanding interest was HK$529,930.96, the total being HK$2,266,108.78.

3.  The principles concerning summary judgment are well established and have been succinctly summarized by DHCJ Wilson Chan (as he then was) in Li Chuen Kwai v Po Lam Construction Development Ltd, HCA 2376/2013, 24 September 2014, at [11] to [14].  With these principles in mind, I now turn to the parties’ respective cases.

4.  P’s case is as follows:

(1) P is a Hong Kong company which carries on business as a money lender.

(2) On about 21 March 2013, Mr Wong Fai Wong of P (“Wong”) instructed Messrs. Tang, Wong & Cheung, solicitors (“TWC”) to draft the following documents: (a) the Loan Agreement, (b) the corresponding memorandum (“the Memorandum”), and (c) the Second Mortgage pursuant to which D would charge a property owned by him (“the Property”) to P to secure repayment of the loan under the Loan Agreement with interest (“the Second Mortgage”) (collectively “the Documents”).  On 25 March 2013, D and Wong attended TWC’s office to sign the Documents.

(3) After D signed the Documents, the original Loan Agreement and Memorandum were retained by D, and a photocopy of the same was retained by Wong for P.  The Memorandum contains the basic terms of the loan agreement and is in both English and Chinese.  The Second Mortgage was explained to D before execution.

(4) Under the Loan Agreement, P agreed to make available to D the loan in the sum of HK$1,900,000.00.  The agreed interest rate was 30% per annum for a fixed period, with interest being repayable by 12 monthly instalments commencing from 25 April 2013.  The full principal sum should also be repaid together with the last instalment of interest on 25 March 2014.

(5) Upon D’s instructions, the principal sum of HK$1,900,000 was split into two parts: (a) HK$400,000 to D by way of a cash cheque, the receipt of which D acknowledged; and (b) HK$1,500,000 which would be withheld by TWC and be used to redeem D’s then existing second mortgage in favour of United Asia Finance Limited (“UAF”) and the third mortgage in favour of the SHK Finance Limited (“SHK”).

(6) The said HK$1,500,000 was correspondingly utilized to redeem the said mortgages as follows:

Redemption money paid to SHK	HK$101,292
Legal costs in relation to the discharge of the third mortgage in favour of SHK	HK$2,500
Redemption money paid to UAF	HK$1,304,368
Legal costs in relation to the discharge the second mortgage in favour of UAF	HK$3,000
Registration fee	HK$450
Net surplus received by D	HK$78,890
Total :	HK$1,490,500

(7) The remaining HK$9,500 are the legal costs of TWC for preparing the Documents.  In view of s. 27 of the MLO, P is prepared to reimburse D with the said HK$9,500.

(8) Save for some partial payments totalling HK$857,500, D has failed to repay to P the monthly instalments as stipulated in the Loan Agreement despite P’s repeated demands.  D is therefore in breach of the Loan Agreement and is liable to repay the entire principal and interest thereon to P.

5.  The defences put forward by D are as follows:

(1) D first met one Mr Tom YK Sze (“Sze”) of Billion Step Investments Limited (“Billion Step”), and Sze referred D to P to have a loan from P.  Sze made the following representations to D (“Sze’s representations”):

(a) no introduction fee would be charged by P;

(b) no document would be registered against the Property in the Land Registry in relation to the loan provided by P to D; and

(c) after the loans owed to UAF and SHK were repaid, D might apply to HSBC for re-mortgaging the Property and thereby lowering the interest rate of the loan owed by D to HSBC under the first mortgage.

(2) On 25 March 2013, D attended P’s office.  D met Mr Wong Huen Kwong (“Wong”) of P and Sze in the office.  In that meeting, a staff member of P orally told D that no document relating to the loan to be provided by P to D would be registered in the Land Registry (“the Staff’s representation”).

(3) Induced by and relying upon the said alleged representations, D entered into the Loan Agreement.

(4) In breach of s.18(1) of the MLO, P has never provided a copy of the Loan Agreement and a copy of the Memorandum to D. Further, P has failed to provide the prescribed summary mentioned in s.18(1)(b) to D.

(5) On 25 March 2013, D attended TWC’s office together with Wong and Sze.  TWC has not explained the contents of the documents (including the Second Mortgage) to him and just asked him to sign the documents.  After signing the documents as requested, D was given to understand that:

(a) a HK$1,300,000 cheque was drawn in favour of UAF to pay off the loan owed by D to UAF;

(b) a cheque of HK$400,000 was drawn in favour of TWC to pay off the outstanding balance of the loan owed by D to UAF (if any), and the remaining sum would be returned to D; and

(c) a sum of HK$200,000 in cash (a pile of bank notes) was paid to Sze as an introduction fee. 

(6) After leaving TWC’s office, D asked Sze to return the cash of HK$200,000 to him, but Sze refused.

(7) All the alleged representations are false.  P in fact has charged D an introduction fee of HK$200,000 and deducted the same from the loan, and paid the HK$200,000 to Sze.  P has also registered the Second Mortgage in the Land Registry.  Further, as a result of the registration of the Second Mortgage, HSBC has refused to accept D’s application for re-mortgaging the Property.

(8) The deduction of the HK$9,500 to TWC as legal fee for the preparation of the Documents is in contravention of s.27 of the MLO.

(9) The HK$200,000 and the HK$9,500 mentioned in the above render the transaction as an extortionate transaction, and the court is entitled to re-open the transaction pursuant to s.25 of the MLO.

6.  In my view, D’s case is contradicted by contemporaneous documents on various material aspects and is unbelievable.

(1) In respect of the HK$1,500,000 and the particulars set out in [4(6)] above, all these are supported by contemporaneous documents.

(2) In respect of the HK$400,000 released to D as set out in [4(5)] above, P has produced a copy of the Cash Cheque and the relevant bank statement showing that the Cash Cheque was presented for payment on 25 March 2015, ie on the date of the Loan Agreement. P has also produced a copy of the relevant receipt in Chinese signed by D (“the Chinese Receipt”).  D has not put forward any evidence, let alone believable evidence, showing any reason why this court should not attach weight to the Chinese Receipt.  There is no reason why D should not be bound by the Chinese Receipt.

(3) The breakdown of the loan alleged by D as set out in [5(5)] above is contradicted by the clear and cogent evidence set out in subparagraphs (1) and (2) above.

(4) D alleged that on 25 March 2013, someone (D has not even identified this person) in the office of TWC gave a piles of banknotes to Sze, the total amount of which being HK$200,000.  In my judgment, this allegation is incompatible with the clear evidence as mentioned in subparagraphs (1) and (2) above and cannot be believable.

7.  According to P, both P and Billion Step are licensed money lenders.  They are separate entities with no common director or shareholder, and neither one is an associate or subsidiary company of the other. It is common in the money lending business for money lenders to make mutual referrals depending on the amount of funding available to them.  Billion Step and P have made referrals to each other in the past, and no extra fee is required for such referrals.  I have ruled that the alleged introduction fee paid by P to Sze is unbelievable.  In my view, there is no believable evidence before me showing that in respect of any matter relating to the Loan Agreement and the Second Mortgage, Sze was acting on behalf of P in any way.  Sze’s representations as alleged by D, even if there is any truth therein, has nothing to do with P.

8.  As to the Staff’s representation, I am of the view that the allegation is unbelievable.  As shown in the evidence, before having any dealing with P, D has the experience of obtaining loans secured by mortgages from HSBC, UAF and SHK.  All these mortgages were registered in the Land Registry.  D must have known that in order to protect the mortgagee’s interest, a mortgage must be registered in the Land Registry. It is contrary to common and commercial sense that any staff member of P would have made the Staff’s representation to D.  Further, even if the said representation was made to D as alleged, it is unbelievable that D would believe and rely upon the same.

9.  D alleges that he should not be bound by the Documents because he did not know the true contents and effect of them.  There is no merit in this point at all.  The flaw in this defence has been pointed out by Ribeiro PJ in Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334, at [84]:

“With respect, that approach is contrary to principle. It is in law highly material to ask how or why the father nevertheless signed the documents. Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

10.  In respect of the provision of the Loan Agreement and the Memorandum to D, in my judgment, D’s alleged non-receipt of these documents is unbelievable.   In both the Loan Agreement and the Memorandum, D has signed his name to confirm receipt of the same.  Wong has given affidavit evidence confirming that it was the handling solicitor who had given one original copy of the Loan Agreement and the Memorandum to D after D had signed on them on 25 March 2013.

11.  In his affirmation, D also alleges that the Loan Agreement was made in TWC’s office and not in P’s office, contravening the MLO.  In my view, there is nothing wrong for making the Loan Agreement in TWC’s office and not in P’s office.  There is no prohibition in the MLO for concluding a loan agreement in a law firm.

12.  As to the non-provision of the prescribed summary to D, P does not dispute that.  However, Ms Lee for P submits that in respect of this non-compliance, the discretion should be exercised in favour of enforcing the Loan Agreement, bearing in mind that save and except the HK$9,500, D has received the entire loan for his own benefit.  Further, D is a sophisticated businessman.  He is a director and shareholder of two companies which he uses to conduct his motor vehicle business.  He has also taken out several loans from banks or other financial institutions in the past.  I accept Ms Lee’s submissions.  I have carefully considered the evidence adduced by D and the submissions put forward by Mr Tsui for D.  In my view, there is no reason why the Loan Agreement should not be enforced against D in full force.  It would be inequitable if P is not allowed to enforce the Loan Agreement against D.

13.  As to the HK$9,500 paid to TWC, P has conceded not to require D to repay the said sum to P.  This is the result stipulated in s.27(4) of the MLO.  Save and except the HK$9,500, D certainly cannot refuse to repay the loan (or any part thereof) and the interest thereon merely because P’s breach of s.27 by reason of previously charging D the HK$9,500.

14.  As to D’s argument that the transaction under the Loan Agreement is an extortionate transaction under s.25 of the MLO, I refuse to accept this submission. I have ruled that the introduction fee of HK$200,000 alleged by D is unbelievable.  P has agreed to reimburse the HK$9,500 mentioned in the above to D.  In the circumstances of this case, I am of the view that P’s previous wrong in charging D the HK$9,500 in breach of s.27 and the other technical breaches of the MLO mentioned in this decision, without more, would not render the transaction as an extortionate transaction under s.25.

15.  In my judgment, D has not shown any triable issue.

16.  I have also considered whether P has complied with the requirement in s. 23 of the MLO, which provides:

“No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:

Provided that if the court is satisfied that in all the circumstances it would be inequitable if a money lender who did not satisfy it that he was licensed at the relevant time was thereby not entitled to so recover such money or interest or to enforce such agreement or security, the court may order that the money lender is entitled to recover such money or interest or to enforce such agreement or security to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

17.  I note that P has produced the following evidence:

(1) the endorsement given to P under s.15(4) of the MLO and dated 7 August 2012 (“the Endorsement”), concerning Money Lenders Licence No.55/2012; and

(2) various money lender licences, concerning the time from 3 April 2013 to 3 April 2018;

(3) the period covered by each money lender licence mentioned in subparagraph (2) above is 12 months, with effect from 3 April.

18.  The date of the Loan Agreement is 25 March 2013.  The money lender licence covering 25 March 2013 has not been produced by P.  The Endorsement obtained by P is the permission granted under s.15(4) of the MLO, allowing P to transfer its business as a money lender from the premises originally specified in its licence to premises not so specified.  The Endorsement itself is not the money lender licence.

19.  A money lender may satisfy the requirement in s.23 of the MLO by production of his licence or otherwise.  Notwithstanding the non-production of the relevant money lender licence, I am of the view that there is sufficient evidence before this court showing that P was a licensed money lender at the date of the Loan Agreement, ie on 25 March 2013.

(1) Wong has given evidence under oath that P was a licensed money lender at the date of the Loan Agreement.

(2) The money lender licences produced by P as mentioned in [17] above showing a pattern that from 3 April 2013 to 3 April 2018, P had a money lender licence for every 12-month period, counting from 3 April of each calendar year.

(3) The Endorsement must be referring to a money lender licence, which was effective before and after 7 August 2012.  The purpose of the Endorsement was to change the premises specified in that money lender licence.  Taking all the evidence into account, it is more probable than not that this money lender licence is the licence covering the period from 3 April 2012 to 3 April 2013.

(4) In both the Loan Agreement and the Memorandum signed by D, D has acknowledged that the P was a licensed money lender at the time of the Loan Agreement.

20.  Even if I were wrong on the above and P has not satisfied the requirement in s.‍‍23 of the MLO, for the reasons set out in [12] above, I am of the view that the discretion under s.23 should be exercised in favour of P and the Loan Agreement should be upheld.

21.  Accordingly, I would allow P’s appeal and set aside the master’s order made on 10 September 2019.  I would enter final judgment against D.  Ms Lee submits that D shall pay interest on the outstanding principal of the loan at the contractual interest rate (ie 30% per annum) up to 25 March 2014, which was the original date stipulated in the Loan Agreement upon which the entire loan should have been repaid.  Ms Lee further submits that thereafter, there should be interest on the outstanding principal at the judgment rate until full payment.  Mr Tsui does not dispute the interests claimed by P.  I therefore order that:

(1) D forthwith repay the outstanding balance of the loan in the sum of (HK$1,736,177.82 – HK$9,500) = HK$1,726,677.82 to P;

(2) there be interest on the said HK$1,726,677.82 at 30% per annum from 25 March 2013 to 25 March 2014;

(3) there be interest on the said HK$1,726,677.82 at the judgment rate from 26 March 2014 until full payment.

22.  Costs should follow the event.  There be a costs order nisi that costs of these proceedings, including costs of P’s application for summary judgment both here and in the court below and all costs reserved (if any), be paid by D to P.  All costs are to be summarily assessed on paper.

23.  At the time of the commencement of these proceedings, P’s claim exceeded the then jurisdiction of the District Court. At all times, the parties are contended to contest these proceedings in the High Court, and no application has been made to transfer the proceedings to the District Court. In the circumstances, I am of the view that costs in these proceedings should be assessed on the High Court scale.

24.  Unless there is an application to vary the said costs order nisi within 14 days after the handing down of this decision, the said order nisi shall become absolute.  Unless otherwise directed by the court, after the costs order nisi becoming absolute, P do provide a bill of costs for summary assessment to the court and to D within 7 days, and D do provide a written reply to the said bill to the court and to P within 7 days thereafter.

25.  I thank counsel for the assistance provided to the court.