YES CAPITAL LTD v. TAM YIU WONG

HCA 3261/2016

[2021] HKCFI 2033

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3261 OF 2016

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J U D G M E N T

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Introduction

1.  This case concerns a Mortgage Loan Agreement dated 12 November 2015 (“the Agreement”). 

2.  On the terms of the Agreement:

(1)  The defendant borrowed HK$1,500,000 from the plaintiff, at the interest rate of 2.5% per month, expressly stated to be equivalent to 30% per annum. 

(2)  The term of the loan was 12 months.  The loan was to be repaid in full on 12 November 2016, or any time forthwith on demand.

(3)  Interest payments were to be made on the 12^th day of each month.  Default interest was to be 2.5% per month.

(4)  The defendant’s liabilities under the Agreement would be secured by a second legal charge or mortgage over a property known as Flat D on 17^th Floor, Yau Shing Mansion Nos 129-139, Tung Choi Street, Kowloon (“the Property”).

3.  There is no dispute that the defendant is and was at all material times the registered owner of the Property, and the plaintiff is and was at all material times a licensed money lender.

4.  There is no dispute that the defendant has defaulted in making repayments (save for the first 3 instalments totalling HK$112,500 in the circumstances described below).  In this action, the plaintiff seeks judgment on the outstanding payments under the Agreement. 

The underlying facts

5.  The defendant’s case is that:

(1)  He is now 66 years old, and educated up to secondary school level.  He is married with one son.  He is and was at all material times a self-employed carpenter / decoration worker, earning a monthly income of HK$7,500 per month in 2015.  His wife, Madam Hong Ping (“Madam Hong”)  is and was a restaurant waitress.

(2)  In June 2013, the defendant received a sum of HK$5,000,000 by way of compensation from the Hong Kong Government for the resumption of his former residential home. 

(3)  He used part of that money, with the assistance of mortgage from the Bank of China, to purchase the Property on 25 June 2013. 

(4)  On 25 June 2015, the defendant obtained a mortgage on the Property from HSBC to raise funds to repay the Bank of China mortgage, and with some funds remaining which he intended to use to invest in another property.

(5)  The defendant however required further funds in order to purchase the other property.  That was the reason why he was looking for further loans in 2015.  He tried, but failed, to obtain a second mortgage on the Property from HSBC.

(6)  Through the introduction of Madam Hong’s friend, one Wong Wai Yin (“Madam Wong”), the defendant came to know a consultant company called Waltz Financial Administrative Limited (“Waltz Financial”).

(7)  On 6 November 2015, the defendant, Madam Hong and Madam Wong went to the office of Waltz Financial at Flat 8, 9/F Energy Plaza, 92 Granville Road, Tsim Sha Tsui. There, they met a Mr Ng.

(8)  Mr Ng represented to the defendant that Waltz Financial could assist in obtaining a second mortgage loan from either Dah Sing Bank or Nanyang Commercial Bank.

(9)  Mr Ng further represented that Waltz Financial would assist the defendant in handling the loan documentation and other related matters. 

(10)  Mr Ng also told the defendant that he could cancel the second mortgage application even after Waltz Financial had secured a loan approval from a bank, by paying a sum of HK$500.

(11)  The defendant therefore instructed Waltz Financial to apply for a second mortgage loan from a bank.  He supplied a number of documents and provided a variety of information to Waltz Financial for that purpose.

(12)  Two or three days later, Mr Ng called the defendant and told him to meet one Mr Ko of Waltz Financial at Sheung Wan MTR at around 2 pm on 12 November 2015, to go to a solicitors’ firm together to complete the formality for obtaining a loan.  The defendant’s evidence, however, is that he did not quite know what the purpose of the visit to a solicitors’ firm was.

(13)  The defendant met Mr Ko at the appointed time.  They then went to the office of Messrs Leung & Lien (“LL”)  in China Insurance Group Building on Des Voeux Road. 

6.  There is no dispute that on 12 November 2015, at LL’s office, he met Mr Poon Ka Wing Steve (“Mr Poon”)  of the plaintiff, Mr Poon’s friend Mr Kam Wing Kwan Eddy (“Mr Kam”)  and one Mr Chu (“Mr Chu”)  of LL, who is referred to as Andy Chu, although his evidence is that his name on his ID card is Anthony Chu.

7.  The defendant’s evidence is that after Mr Ko went to LL’s office with the defendant, Mr Ko then went into a conference room with the defendant.  At that time Mr Poon and two other members of staff were already there.  The defendant cannot remember whether Mr Kam was.  The defendant’s evidence is that Mr Ko stayed in the conference room for a while, and left soon.  Mr Poon’s evidence is that the defendant did not enter into the conference room with anyone.  I agree with Mr Lau that it is inherently more likely that Mr Ko did not enter the conference room at all, as there was little point for him to sit there for a while, say nothing, and leave soon.

8.  There is no dispute that the defendant signed a series of documents at LL’s office, and received a cheque of HK$1,387,500 (“the Cheque”), drawn on LL’s account at the Bank of Communications. 

9.  The difference between the principal of HK$1,500,000 stated in the Agreement and the HK$1,387,500 (i.e. HK$112,500)  was withheld by the plaintiff, essentially as pre-payment of the first three monthly instalments for interest (at HK$37,500 per month).

10.  Mr Chu’s evidence (which I do not understand to be of any dispute)  is that the Cheque was made out in such a way that the defendant could be paid in cash if he presented the Cheque at the Bank of Communications.  Alternatively, he could present the Cheque at any bank where the defendant held an account, and then he could deposit the amount into his own account.

11.  Continuing with the narrative of the defendant’s case:

(1)  After the meeting at LL, Mr Ko asked the defendant to go to a bank with him to cash the Cheque. The defendant obliged and went to a nearby bank to cash the Cheque.  Although the defendant’s evidence is that he cashed the Cheque with the Bank of China, counsel agreed that the documents show that he did so at a branch of the Bank of Communications.

(2)  Be that as it may, the defendant managed to draw out cash in the amount of HK$1,387,500.  Mr Ko asked the defendant to pay over the entirety of this amount to him, which he did.  Mr Ko then gave back HK$100,000 cash to the defendant.  Mr Ko also gave a receipt under the name of Waltz Financial acknowledging receipt of HK$1,287,500 from the defendant as “Mortgage Loan Service Fee”.

(3)  Afterwards, the defendant and Madam Hong became suspicious about what happened.  They then made various attempts to cancel the application with Waltz Financial, and seek repayment of the HK$1,287,500.  Sadly, those attempts came to nothing.  The defendant reported the matter to the police on 1 December 2015.  It would appear that the office of Waltz Financial later became deserted.

12.  The defendant was able to produce a number of documents showing his dealings with Waltz Financial:

(1)  A loan application and referral agreement under the letterhead of Waltz Financial and showing a chop of Waltz Financial dated 6 November 2015.

(2)  An authorization letter under the letterhead of Waltz Financial signed by the defendant and dated 6 November 2015.

(3)  A receipt for HK$300 bearing the chop of Waltz Financial, dated 6 November 2015.

(4)  Receipt for HK$1,287,500 bearing the chop of Waltz Financial, dated 12 November 2015.

(5)  An invoice stating the name of Waltz Financial for “Mortgage Loan Service Fee” of HK$1,287,500, bearing the chop of Waltz Financial and signed by the defendant, dated 12 November 2015.  The defendant’s evidence is that this document was signed on 2 December 2015.

(6)  An authorization letter dated 2 December 2015 bearing the chop of Waltz Financial and the signature of the defendant, authorizing Waltz Financial to retain the 4^th instalment of HK$37,500 to repay the plaintiff.  The defendant’s evidence is that this document was signed on 2 December 2015.

(7)  Copies of blank name cards bearing the Chinese and English names of Waltz Financial, which the defendant says he had received from Mr Ng.

13.  The authenticity of these documents is not challenged.  It would therefore appear to be clear that the defendant did deal with Waltz Financial.  The receipt and invoice also tend to show that the defendant had paid HK$1,287,500 to Waltz Financial.

14.  Mr Raymond Lau (counsel for the plaintiff)  made the point that the defendant’s version of events is somewhat extraordinary.  The payment of such a large sum of cash to Mr Ko is, to say the least, an odd thing for the defendant to have done. 

15.  Also, it would appear to be extraordinary that even after the report to the police on 1 December 2015, the defendant still signed the invoice and authorization letter on 2 December 2015 (even though the defendant said that he did so after receiving some assurances from Mr Ng on 2 December 2015).

16.  However, given the consistent evidence given by the defendant and his witnesses, which is also consistent with the documents he is able to produce, I accept the defendant’s evidence that he had paid cash in the sum of HK$1,287,500 to Mr Ko (or, more accurately, the person whom he believed was called Mr Ko)  on the representation by Waltz Financial that it was part of the process of applying for a second mortgage.

17.  It is difficult not to be sympathetic with the defendant’s plight.  But whether the plaintiff should be responsible for his misfortune would be another question, and would have to be adjudicated on the evidence before the Court.

18.  At this trial, Mr Poon gave evidence for the plaintiff.  The defendant and Madam Hong were called by the defendant to give evidence.  Mr Chu gave evidence on the defendant’s subpoena.

19.  During the cross-examination of Mr Poon, Mr Alan Ng (counsel for the defendant)  put a number of propositions to him.  After his evidence was complete, Mr Alan Ng made an application to re-call Mr Poon to put a number of further propositions to him.  That application was not opposed by Mr Lau.

20.  By this process, the case put to Mr Poon, in gist, was that:

(1)  The plaintiff knew Waltz Financial before 12 November 2015.

(2)  The plaintiff and Waltz Financial worked together in order to deceive the defendant into paying HK$1,287,500 cash to Waltz Financial.

(3)  The plaintiff instructed LL to issue the Cheque in the form enabling the defendant to withdraw cash directly, so that Waltz Financial could obtain the HK$1,287,500 in cash from the defendant.

21.  Mr Alan Ng fairly accepted that these are serious allegations made against Mr Poon and the plaintiff, and hence evidence of corresponding cogency is required. 

22.  I am afraid I do not think this case advanced on behalf of the defendant is made out.  I am not satisfied that the plaintiff and Waltz Financial worked together to deceive the defendant into paying HK$1,287,500 cash away, or that they had worked together in any way.  I do not think it is even proved that the plaintiff and Waltz Financial knew or had any dealings with each other.

23.  The short point is that I do not think there is sufficient evidence to show that Mr Poon (or the plaintiff)  is in any way connected to Waltz Financial, or had heard of such an entity at the time of the Agreement.

24.  The plaintiff has been able to produce (albeit rather late in the day), an email from mancompany.mb@gmail.com to Mr Poon, dated 10 November 2015, entitled “Fwd:譚耀煌”.  The attachment to this email contains an array of information of the defendant, including a filled-in form stating his address, his estimated income, his mobile phone number, the loan he was seeking, and certain information about his wife and son.

25.  It appears to me clear that the attachments to this email were essentially a loan application (with supporting information)  by the defendant.  I accept that Mr Poon’s evidence that this email shows that the defendant was introduced to the plaintiff by one “Man Company”.

26.  It would appear from a Business Registration search that this “Man Company” is not an incorporated entity.  It is, instead, a sole proprietorship.  But I do not think this matters. 

27.  I should also record that Mr Poon had been cross-examined on why the email from Man Company was only discovered so late.  He gave evidence that he was probably previously using the wrong search terms, such as “Annie Ng” (the name of the person in Man Company with whom he dealt)  and “Man & Co”, such that no result was returned.  He also said that he was unable to find the email in the plaintiff’s company records and a copy of that email was only retained in his personal emails on his desktop.  As there is no challenge to the authenticity of the email (though there was a suggestion that the filled-up forms were “forged”), on balance I would accept Mr Poon’s explanation. 

28.  I should also add that I do not think there is anywhere close to sufficient evidence to prove the very serious allegation that filled-up forms were forged.

29.  Mr Poon also gave evidence that he had tried to get Annie Ng to give evidence for the plaintiff, but he was unable to reach her on the phone number he had.  Again I would accept Mr Poon’s evidence.

Section 27(3)  of the MLO

30.  Section 27(3)  of the Moneylenders Ordinance (Cap 163) (“ the MLO”)  is heavily relied upon by the defendant.  It relevantly provides that:

“… it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges)  or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.”

31.  On the facts I have found above, I think it is clear that Waltz Financial was not a “partner, employer, employee, principal or agent or any person acting for” the plaintiff.

32.  The defendant contends that Waltz Financial was “acting in collusion” with the plaintiff.

33.  This phrase has received authoritative interpretation in HKSAR v Wong Kwok Wai (2013)  16 HKCFAR 191.  That case concerns a criminal prosecution under section 29(10)  of the MLO.  The elements of that offence are materially identical to the elements of unlawfulness under section 29(3).  Section 29(10)  of the MLO provides that:

“Any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender who charges, recovers or receives any sum as for or on account of any costs, charges or expenses (other than stamp duties or similar charges)  referred to in section 27(3)  or demands or receives any remuneration or reward whatsoever from a borrower or intending borrower for or in connection with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof commits an offence.”

34.  Tang PJ said at [11] that:

“… On such a charge, the question to ask and answer is whether the persons who are said to have acted in collusion were playing the same game. It should not be made more complicated.”

35.  This test was adopted and applied in a civil dispute concerning section 27(3)  in Ever-Long Finance Ltd v Yeung Wah Leung [2017] 1 HKLRD 500.  It was said by Deputy District Judge Simon Ho that:

(1)  The word “collusion” under sections 27(3)  and (4)  of the MLO would need to be construed in its own statutory context against the whole of the Ordinance with its objective and intent in mind.  One key purpose of MLO is to protect the borrower from having to borrow money from others at excessive or extortionate interest rates [86].

(2)  The purpose of sections 27(3)  and (4)  was chiefly to prevent the statutory protection afforded to the borrower under the MLO being stripped away or otherwise compromised by not only the money lender but also by other “related persons” in receiving charges etc from the borrower.  Those charges etc are “essentially the borrower’s costs of borrowing from the money lender” [88].

(3)  In [90], it is said that a person “who identifies his interests with the money lender’s rather than the borrower’s” would qualify as a person who acts in collusion with the money lender for the purposes of section 27(3)  and (4).

(4)  It is also said in [90] that “it would be sufficient for such person and the money lender to co-operate with each other to do or abstain from doing some act(s)  with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice.”  This is subsequently approved by the Court of Appeal in Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831 [49] (Kwan VP).

(5)  At [92], the court explained that “collusion” in this context is wider than conspiracy. Whilst proving conspiracy is one of the ways to establish “collusion”, it is not the only way.  This is also approved in Chan Suk Fong [49] (Kwan VP).

(6)  [93] further stated that “collusion” under sections 27(3)  and (4)  is “broad enough to cover ‘co-operation between parties to deceive or otherwise to do harms or others’.”  This is also approved in Chan Suk Fong [49] (Kwan VP).

36.  It was also said in Gain Wealth Global Credit Investment Ltd v Lam Hau Kay (DCCJ 2610/2015, 19 July 2018)  [52] that by using the phrase “in collusion with” under both sections 27(3)  and (4)  of the MLO, “the statutory scheme is able to cover the entities who may have a less well-defined relationship with the money lender but nonetheless involved in part of the lending process, such as the intermediaries.”

37.  Mr Alan Ng submitted that even if I were to find (as I have done)  that the plaintiff and Waltz International did not know each other and did not agree to act together, I could still find that they were acting in collusion.  He submitted that it would suffice if the money lender was prepared to cooperate in such a way to facilitate an intermediary to perpetrate a fraud, in circumstances where the money lender knew or ought to have known that such cooperation would facilitate the fraud.  He submitted that in that sense the money lender and the intermediary would still be “playing the same game”.

38.  Much as I sympathize with the defendant’s plight, I am afraid on reflection I am unable to accept Mr Alan Ng’s submission on the construction of sections 27(3)  and (4).

39.  In my judgment, a moneylender in the position of the plaintiff cannot be said to be acting “in collusion” with someone it did not even know, and with whom it did not work together in any meaningful sense.  There could be no element of “co-operation” between such entities.

40.  Fully bearing in mind that the policy of the MLO is to regulate money-lending activities and afford protection to borrowers, I am of the view that I am constrained by the words chosen by the legislature. 

41.  “Acting … in collusion with a money lender” (or “與放債人共謀” in Chinese), or “playing the same game”, in my judgment, involves at least some element of “acting together”. 

42.  At the very least, to sensibly say that A is “acting in collusion” with B, or “與B共謀”, or “playing the same game” with B, A must at least know that B exists, and that B has some involvement in the relevant transaction. 

43.  On the basis of the factual conclusions I have reached above, I would hold that Waltz Financial is not someone “acting for or in collusion” with the plaintiff for the purposes of sections 27(3)  and (4)  of the MLO.

Other MLO defences

44.  The defendant’s complaint that the effective rate of interest exceeded 60% (and hence contravened sections 24(1)  and (2)  of the MLO)  is on the premise that there was collusion between Waltz Financial and the plaintiff, such that the HK$1,287,500 paid to Waltz Financial was to be treated as never lent. 

45.  In light of my conclusions above, I am unable to accept that analysis, and I would hold that the HK$1,287,500 was part of the loan lent to the defendant.  That would mean that the complaint based on sections 24(1)  and (2)  of the MLO would fall away.

46.  As to section 25 of the MLO, paragraph 37 of the Re-Amended Defence is expressly premised on the allegation of collusion.  Now that I have rejected that allegation, I am unable to hold that the transaction should be reopened under section 25 on that basis.

47.  In closing, Mr Alan Ng submitted that I could rely on other facts pleaded in other parts of the Re-Amended Defence to sustain a holding that the transaction was extortionate under section 25. 

48.  Be that as it may, I do not I think there is sufficient material for me to find that the transaction was extortionate for the purposes of section 25.

49.  In his written closing submissions, Mr Alan Ng drew attention to the fact that the defendant’s evidence was that he had never stated that he was a “subcontractor” (判頭).  It was further argued that the circumstances of the defendant were such that it would be obvious that he would not be able to meet the monthly payments of HK$37,500.  Further, it was said that the defendant only intended to borrow HK$1,000,000 at a low interest rate for a long term investment purpose, but he ended up with a short term loan of HK$1,500,000 with an obligation to repay HK$1,950,000 after one year, and further putting his only residential property at risk of enforcement.

50.  I am unable to accept that submission.  I do not think there is sufficient material to show that the plaintiff knew that the defendant would not be able to afford the repayment terms.  Nor do I think that there is sufficient material to show that the plaintiff knew that the defendant only wanted a HK$1,000,000 loan on a long-term basis.

51.  Mr Alan Ng also referred to section 21 of the MLO in support of his argument under section 25. It is said that the terms of the loan were such that it prevented early payment by the borrower, and that this should be taken into account in determining whether the transaction was extortionate under section 25.

52.  I reject that submission. 

(1)  There is no suggestion that the prohibition of early payment under the terms of the loan had occasioned any prejudice to the defendant. 

(2)  Also, as I understand the effect of section 21, any provision in the loan documents prohibiting early payment would simply be overridden.  In other words, the effect of section 21 is simply that whatever are the provisions in the loan documentation, a borrower is entitled to make early payment.  In other words, provisions prohibiting early payment would simply be of no effect; the existence of such provisions would not affect the validity or enforceability of the loan.

53.  I now turn to the complaints under section 18 of the MLO.  It is argued on behalf of the defendant that sections 18(2)(d), (i)  and (j)  are breached.

54.  Given my conclusion that the HK$1,287,500 paid by the defendant to Waltz Financial should be treated as having been lent by the plaintiff, the remaining complaint under sections 18(2)(d)  and (i)  would be that the actual principal lent was only HK$1,387,500.  That was the sum actually handed over to the defendant.  It is common ground that HK$112,500 (representing 3 months’ repayment of HK$37,500 each)  was retained by the plaintiff.

55.  Mr Alan Ng argues that even on this basis, there was still non-compliance with sections 18(2)(d)  and (i)  of the MLO. 

(1)  Those subsections require that the section 18 memorandum should state the amount of the principal of the loan and the rate of interest.

(2)  The memorandum states that the principal extended was HK$1,500,000.  It further states that the interest rate of the loan was 30.00% per annum.

(3)  However, given that the plaintiff had withheld HK$112,500 and had only handed over a cheque of HK$1,387,500, only the principal of HK$1,387,500 was extended. Correspondingly, the interest rate should be calculated on the basis of this lesser amount of principal, such that it was more than 30% per annum.

56.  I would agree with Mr Alan Ng.  The plaintiff’s withholding of HK$112,500 means that in effect the defendant never had the benefit of, or the chance to use, this part of the loan.  In substance, this HK$112,500 was never extended to the defendant as part of the loan.  Correspondingly, I would agree that there was a breach of sections 18(2)(d)  and (j).

57.  As for section 18(2)(j), this subsection requires the memorandum to set out a declaration as to the place of negotiation and completion of the agreement for the loan. 

58.  In the memorandum, the declaration is made that the place of negotiation and completion of the agreement is the business address of the plaintiff in Parkes Street, Kowloon.  It is obvious that this is not accurate.  In no sense could it be said that the loan was negotiated and completed at that address.  Mr Poon accepted as much in cross-examination.

59.  For completeness:

(1)  I should record that Mr Lau argued that there was no breach of section 7 of the MLO, because the plaintiff did carry on its business at the Parkes Street address.  He went on to argue that there was accordingly no breach of section 18(2)(j). 

(2)  However, I do not think that it is necessary to consider whether there was any breach of section 7 when the question is whether there was any breach of section 18(2)(j).  The terms of these two provisions are different.  In my view, in considering whether there was any breach of section 18(2)(j), I should only analyse the matter by reference to the words of that provision.

(3)  I should also note that although the defendant listed whether there was a breach of section 7 as one of the issues in his written opening, that issue no longer appears in the list of issues in paragraph 3 of the written closing for the defendant.  I take it to mean that this issue is no longer pursued by the defendant, and therefore does not require determination.

(4)  In any event, in case it is relevant in any way, I would hold that there was no breach of section 7, because the plaintiff did carry on business at the address supplied in its licence. Further, whether there was any breach of section 7 is irrelevant, because even if there were a breach, it would have no impact on the enforceability of the Agreement.

60.  Having found that there is a violation of sections 18(2)(d), (i)  and (j), section 18(1)  of the MLO would, subject to section 18(3), render the loan agreement unenforceable. 

61.  Section 18(3)  provides that:

“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 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.”

62.  It appears to me that the structure of this subsection is that the court will have to consider two questions in the following order:

(1)  Whether the court is satisfied that it would be inequitable that the loan agreement should be held not to be enforceable;

(2)  If so, to what extent, and subject to what modifications or exceptions, should the loan agreement be enforced.

63.  The Court of Final Appeal has given authoritative guidance on the proper approach in the exercise of this discretion in Strong Offer Investment Ltd v Nyeu Ting Chuang (2007)  10 HKCFAR 529 [17] to [20] (Chan PJ).  At [20], it is said that:

“In resolving any dispute between the money lender and the borrower, therefore, there should be no pre-conceptions either in favour of or against the money lender or the borrower. The statute has sought to strike a fair balance between the two parties. In applying the provisions of s. 18, the court has to bear in mind, among other things, the parties’ respective rights and obligations under the statute as well as the agreement made by them. See Ribeiro PJ in Celestial Finance Ltd v Yu Man Hon (2004)  7 HKCFAR 450 at para. 21.”

64.  Further, at [61] and [62] of the same case, Ribeiro PJ said that:

“61. It follows from s.18(3)  that, having found one or more breaches of the section established, the Court goes on to consider whether it ought nevertheless to exercise its discretion in favour of enforcement, the burden being on the money lender to satisfy the court that in all the circumstances it would be inequitable to refuse enforcement notwithstanding non-compliance. As stated in Emperor Finance, in exercising its discretion the court examines the breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable.

62. In this context, the particular circumstances of the borrower are highly important. A key consideration is whether any prejudice flows from the statutory breaches established. Plainly, breaches of the documentary requirements for specifying the amount borrowed, the interest rate, and so forth, are likely to prejudice a borrower who, not having a proper note or memorandum, may fail fully to appreciate the terms of the transaction entered into. The absence of a proper note or memorandum would make it difficult to verify the extent of his liabilities, with or without help from others. In such cases the money lender would be most unlikely to satisfy the court that a refusal to enforce the agreement would be inequitable. On the other hand, a sophisticated speculator who has authorised and is kept fully informed of all the trades done on his behalf and all borrowings incurred to effect those trades is in a different situation. A person who has chosen with eyes wide open to take the risks of highly leveraged trading on credit, may suffer no prejudice at all from deficiencies in the original documentation. The court may be satisfied in such a case that the equities favour enforcement.”

65.  I think the following circumstances are relevant to my exercise of the section 18(3)  discretion.

(1)  No prejudice can be said to flow from the violation of section 18(2)(d)  and (i). I do not believe there is any suggestion (or any basis to suggest)  that if these two subsections were complied with, events would have taken a different course in any material way.

(2)  As to section 18(2)(j), even if there had been a declaration that the case of completion of the Agreement was the offices of LL, the events would likely have taken materially the same course.

(3)  However, in respect of section 18(2)(j), if the plaintiff had devoted its attention to where the place of negotiation of the loan was, it is well possible that it would then be revealed that the intermediary who dealt with the defendant was in fact Waltz Financial, rather than Man Company.  It is impossible to predict precisely what would happen, but it is at least possible that a discussion would then take place such that the plaintiff would be made aware of the involvement of Waltz Financial (as after all it was at Waltz Financial that part of negotiation took place), and what had been discussed between the defendant and Waltz Financial.  It would in turn be possible that the defendant would then be disabused of any misapprehension that Waltz Financial had generated.  I think it is fair to say that some prejudice can be said to have flowed from the plaintiff’s failure to properly comply with section 18(2)(j). It is at least possible that events would have transpired in a materially different way.

(4)  In the defendant’s favour is also the fact that the plaintiff obviously knew that the defendant was introduced to borrow money from it through an intermediary or intermediaries. Indeed, the plaintiff took care to incorporate into the explanation given by Mr Kam to the defendant that the plaintiff did not know what deals had been made between the defendant and any intermediary, and stressed that the intermediaries were not related to the plaintiff.  Given the violation of section 18(2)(j), and the prejudice it occasioned as outlined above, it would be inequitable if the plaintiff could completely distant itself from an intermediary’s conduct, even if it had not colluded with them.

(5)  Further, on any view the defendant was obviously an unsophisticated party, and had limited education and means.  I appreciate that this factor is not directly related to the violations of section 18(2).  But, in my judgment, the statute is of such wide terms that the court is entitled to, and is indeed obliged, to take into account all circumstances.

(6)  On the other hand, I think it is important to have regard to the fact that the plaintiff had paid out HK$1,387,500.  On the facts that I have found, they did not act in collusion with Waltz Financial.  Accordingly, if the Agreement is to be held to be totally unenforceable, the plaintiff will have to bear the entirety of the loss of HK$1,387,500, when it had no part in the perpetration of the fraud.

(7)  It could also be said that it is unfair to hold the plaintiff liable for the consequences of the defendant buying into the fraudulent scheme of Waltz Financial.  At the end of the day, despite the fact that the defendant was an unsophisticated party of limited education and commercial experience, he was proposing to engage in a substantial commercial transaction.  He was, after all, taking out loans to finance a property investment.  There should therefore be some obligation on his own part to take due care.  Handing over cash in excess of HK$1,200,000 essentially the very moment after the cheque was given to him was on any view and extraordinary thing to do.

66.  On balance, I am of the view that it would be inequitable if the Agreement were to be unenforceable in totality. Total unenforceability would mean that the plaintiff would bear all the consequences of the defendant buying into the fraudulent scheme of Waltz Financial.  That, in my view, would be inequitable.

67.  I would therefore have to consider to what extent, and subject to what modifications or exceptions, should the Agreement be enforceable.

68.  I believe that it would be equitable to enforce the Agreement only to the extent of requiring the repayment of the principal.  By principal I mean HK$1,387,500, that being the actual amount of money that the plaintiff had paid over to the defendant.

(1)  For the reasons I endeavoured to state above, I am of the view that there is some prejudice flowing from the violation of section 18(2)(j).  That prejudice, on its own, would have moved me to exercise my discretion in the way I proposed. 

(2)  I am fortified in that view by reason of the fact that the defendant was an unsophisticated party with limited education and means.

(3)  I believe that a restriction that the plaintiff be only entitled to recover the principal would also mean that the plaintiff would not suffer undue loss arising out of this transaction.

69.  For the above reasons, I would allow the plaintiff’s claim only to the extent of ordering payment of the sum of HK$1,387,500.  I will give the defendant 28 days from the date hereof to make such payment, failing which interest shall accrue at judgment rate from that date until the date of payment.

70.  As to costs, I will make a costs order nisi that there be no order as to costs, and that the defendant’s costs be taxed in accordance with the Legal Aid Regulations.  I believe this is a fair balance in the circumstances, given the fact that the plaintiff did succeed in obtaining a judgment for a substantial sum, yet only did so in circumstances where it had violated section 18(2)  of the MLO, and on the basis of the court’s exercise of a discretion in its favour, resulting in a judgment for a sum substantially less than what it sought.

71.  It remains for me to thank counsel on both sides for their assistance. I am extremely grateful to the professionalism, courtesy and proportionality displayed.