GAIN WEALTH GLOBAL CREDIT & INVESTMENT LTD v. CHAN SUK FONG

CACV 28/2019

[2021] HKCA 1219

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 28 OF 2019

(ON APPEAL FROM HCA NO 77 OF 2016)

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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.  On 4 September 2020, we handed down our judgment[1] allowing the plaintiff money lender’s appeal from the judgment of Deputy High Court Judge Sherrington on 21 December 2018[2] in which he dismissed the plaintiff’s claim against the defendant borrower for recovery of principal and interest in the total sum of $1,048,493.15. We set aside the judgment and replaced it with a judgment in favour of the plaintiff in the amount of $220,872.24 with interest at the judgment rate to run from the date of the judgment below.

2.  In gist, we held that the judge had made errors of law in his holdings as to interest and principal for the calculation of the effective rate of interest. Contrary to his holding that the effective rate exceeded 60% per annum alternatively 48% per annum, the effective rate of interest in this instance was 39% per annum and hence the holding that the loan agreement was unenforceable for exceeding the effective rate of 60% per annum alternatively was extortionate for exceeding the effective rate of 48% per annum cannot be maintained.

3.  There was no appeal against the judge’s holding that even if the effective rate of interest was below 48% per annum, the plaintiff’s egregious conduct and complete disregard of the Money Lenders Ordinance, Cap 163 (“MLO”) manifestly contravened ordinary principles of fair dealing, such that the court was empowered under sections 25(1) and (2)(b) to reopen the transaction to do justice between the parties.  The defendant’s counsel, Mr B K Ho, took no issue with the manner suggested by the plaintiff’s counsel, Mr Ross Yuen, as to how the discretion to reopen the transaction should be exercised on appeal.  We adopted the approach that appeared to have the consensus of the parties and reopened the transaction by reducing the amount the defendant should repay the plaintiff to $220,872.24.  We did not disturb the order awarding indemnity costs of the action to the defendant and we made no order as to the costs of the appeal.

4.  On 29 December 2020, the defendant filed an application for leave to appeal to the Court of Final Appeal.  Even with the legal aid stay of 42 days, the time for lodging such an application had expired on 9 November 2020.  The delay subsequent to the legal aid stay was seven weeks. Her solicitors had filed a notice of intended application for leave to appeal on 15 October 2020.  In her affirmation in support of an application for extension of time filed on 29 December 2020, the defendant stated that she waited for the result of her legal aid application and only received a letter from the Legal Aid Department on 4 December 2020 offering her legal aid to lodge the intended appeal.  Her acceptance of the offer was returned to the Legal Aid Department on 7 December 2020.  It was only on 23 December 2020 that she was notified by her solicitors they just received a legal aid certificate dated 16 December 2020.  She issued the present application on 29 December 2020.

5.  The delay of seven weeks subsequent to the legal aid stay is substantial.  We do not think this substantial delay is excusable. In exercising the discretion whether to extend time to apply for leave to appeal out of time, the arguability of the intended appeal is very important.  We apply the test whether it has been shown that the intended appeal has real prospect of success on the merits (Full Wisdom Holdings Limited & Ors v Traffic Stream Infrastructure Co Ltd & Ors, CACV 266/2003, 27 July 2004, §§7 and 10).

6.  For the reasons given below, we decline to extend time as we are not satisfied that the intended appeal has real prospect of success on the merits.  In any event, we would not have exercised our discretion to grant leave to appeal as we do not think the grounds of appeal are reasonably arguable and that questions of great general and public importance would arise in the intended appeal.

7.  The questions said to be of great general and public importance relate to (1) whether all the monies the defendant was defrauded to pay to a fraudster should be treated as “interest” under section 2(1) for the purpose of calculating the effective rate of interest[3]; and (2) whether all the defrauded monies should be deducted from the principal in the loan agreement to arrive at the deemed “principal” under section 2(1) for the calculation of the effective rate of interest[4]. The defendant also relied on the “or otherwise” limb. 

8.  Mr Yuen made the point that the questions set out in §§(1)(a) to (f) of the application for leave to appeal are not properly framed and that they are different from the questions to be determined set out in §§2(1) to (2) of Mr Ho’s submissions.  We are inclined to agree. It is not necessary to go into the detailed formulation of the questions.  Suffice to say that the main point sought to be argued in the intended appeal is that the money lender, found by the judge to be a party to the collusion with a fraudster in causing the borrower to borrow $1 million from the money lender (there was no appeal against this finding of fact), should be liable for the acts of the fraudster in tricking the borrower to hand over four sums of money subsequently to the fraudster – even though there was no evidence of the money lender’s involvement in those acts of the fraudster and no evidence that those payments were sought or received on behalf of the money lender – so that all the sums the borrower was defrauded to part with to the fraudster should be treated as “interest”[5] and be deducted to derive the deemed “principal”[6].

9.  Mr Ho contended that the Court of Appeal had applied a restrictive interpretation to “interest” and “principal” under section 2(1), and hence did not correctly construe and apply sections 2, 24 and 27 of the MLO, the legislative purpose of which is to protect vulnerable borrowers from loan sharks.

10.  But as pointed out by Mr Yuen, various restrictive interpretations he argued for the money lender regarding sections 2, 24 and 27 were all rejected by the Court of Appeal. With regard to section 27, Mr Yuen’s contention that defrauded monies are outside the ambit of that provision was rejected[7]. In respect of deemed “interest” in section 2(1), his argument that interest should be construed as requiring the amount to be paid or payable to the lender was rejected[8]. As to deemed “principal” in section 2(1), his argument that any sum paid in breach of section 27 should not be deducted to derive the deemed principal was rejected[9].

11.  What the CA Judgment did was to examine the nature and substance of the sums paid by the borrower to the intermediary fraudster. In deciding that the four sums of money paid by the borrower to the fraudster should or should not be taken into account as deemed interest or deducted from the contractual principal, the Court of Appeal has not laid down any principle of law or made any specific interpretation of “interest” and “principal” in section 2(1) that defrauded sums could never be treated as interest or should never be deducted from the contractual principal.  The CA Judgment decided that how the four defrauded sums should be treated would depend on the particular fact situation[10], in other words it is fact-sensitive and does not give rise to any question of great general or public importance.

12.  Of the four defrauded sums, no issue arises in respect of $37,000 paid as “upfront fee”[11]. The sum of $42,500[12] was derived from an earlier scam involving a different money lender and it was accepted that there was no proof of any connection between the other money lender and the plaintiff[13].  As for the two remaining sums of $100,000[14] and $110,000[15], it was held that in light of the evidence (there was no finding by the judge of any involvement of the plaintiff regarding the monies the borrower was tricked into paying the fraudster and no evidence that those payments were sought or received on behalf of the plaintiff)[16], they do not come within the definition of “interest” as monies “paid or payable in consideration of or otherwise in respect of a loan”[17].

13.  In respect of the treatment of “principal”, we held that apart from the upfront fee of $37,000, the sum of $100,000 paid to the borrower by cash cheque should be deducted from the contractual principal as a compelling inference could be drawn that the cash cheque was issued to facilitate payment of its proceeds to the fraudster as intermediary[18].

14.  Mr Ho merely repeated his contention that as the judge had found there was collusion between the plaintiff and the fraudster, they were “joint tortfeasors” and the plaintiff should be held jointly and severally liable with the fraudster as they were players in the same game.  He contended that the finding of collusion is sufficient and the Court of Appeal was wrong to require evidence of the plaintiff’s involvement regarding the monies defrauded by the fraudster or anything to link the payments by the defendant to the fraudster with the loan made by the plaintiff.

15.  In rejecting his contention[19], the CA Judgment has not laid down any principle of law that a party to a collusion could never be held liable for the result of the fraud of the other party.  It all depends on the particular involvement of the parties in the fraudulent act in question.

16.  Mr Ho submitted that the Court of Appeal was plainly wrong in making two assumptions notwithstanding the judge’s finding of collusion of the plaintiff and the fraudster and the finding that the plaintiff had conspired with a firm of solicitors to have the defendant execute a number of self-serving documents.  Firstly, the Court of Appeal assumed there was “no evidence to establish the scam”.  Secondly, it assumed that the judge’s finding of collusion was simply based on “innocuous activities” of the fraudster merely acting as an intermediary in putting the lender in contact with the borrower and passing on information obtained from the borrower to the lender.

17.  Mr Ho further complained as the plaintiff had not appealed against the finding of collusion, “the evidence which [was] relied on by [the defendant] to establish collusion in the court below was not before [the Court of Appeal]”.  Had the plaintiff appealed this finding, “no doubt all the evidence relating to collusion in the court below would be before [the Court of Appeal]” and it “would not have to assume that the Judge below relied on such innocuous activities to find collusion”.

18.  We do not think his criticisms are justified.  It is incorrect to say that assumptions were made by the Court of Appeal.  The fact remains that no finding was made by the judge of any involvement of the plaintiff as regards the monies the defendant was tricked into paying the fraudster and no evidence that those payments were sought or received on behalf of the plaintiff.  It is irrelevant that the plaintiff did not appeal against the finding of collusion.  The defendant did not cross appeal against the lack of finding that the plaintiff was involved in the fraud perpetrated on the defendant to induce her to part with the funds.  In the absence of findings by the judge, which was not challenged on appeal, it is not permissible for the Court of Appeal to make findings going beyond what the trial judge was prepared to find as to the extent of the plaintiff’s involvement in the scam.

19.  There is no issue of construction of the MLO.  The contentions of Mr Ho are fact-sensitive and are not reasonably arguable. Nor do we think exceptional circumstances are made out to justify granting leave on the “or otherwise” ground.

20.  For all the above reasons, we dismiss the application for leave to appeal to the Court of Final Appeal.

21.  We order the defendant to pay the plaintiff’s costs of this application and that the plaintiff’s own costs are to be taxed in accordance with the Legal Aid Regulations.  We decline to exercise our discretion to order indemnity costs as sought by the plaintiff.

22.  Having considered the plaintiff’s statement of costs for summary assessment, we assess the plaintiff’s costs at $109,070.

23.  The costs order and summary assessment are in the nature of orders nisi.  Any application to vary the orders nisi should be made within 14 days of the handing down of this judgment.