THING ON CAPITAL LTD v. AN JINCHEN AND ANOTHER

HCMP 1019/2019

HCMP 1020/2019

[2023] HKCFI 2128

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NOS 1019 AND 1020 OF 2019

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REASONS FOR JUDGMENT

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A.  INTRODUCTION

1.  In these proceedings, the plaintiff, which is and was at all material times a money lender licensed under the Money Lenders Ordinance,[1] seeks to recover from the defendants amounts due under two loans made to them. At the conclusion of the trial on 14 August 2023, I give judgment in favour of the plaintiff as per [18] below. These are my reasons.

2.  The first loan is in the principal sum of HK$50,000,000, at the interest rate of 12% per annum, made pursuant to a facility letter dated 15 December 2016 and secured by two properties in the name of the defendants respectively (“the Properties”). On 22 December 2016, the sum of HK$50,000,000 was advanced as follows, in accordance with a Notice of Drawing dated 19 December 2016 signed by the defendants:

(1)  HK$120,000 as costs and HK$1,800 as disbursements to solicitors acting for the plaintiff;

(2)  HK10,000,000 to Top Level Capital Limited (“TLCL”);

(3)  HK$516,666.67, which was deducted from the principal as first payment of interest to the plaintiff in advance;

(4)  HK$39,361,533.33 to the plaintiff.

3.  The second loan is in the principal sum of HK$25,000,000, at the interest rate of 12% per annum, made pursuant to a facility letter dated 1 May 2017 and secured by the same Properties. On 4 May 2017, the sum of HK25,000,000 was advanced as follows, in accordance with a Notice of Drawing dated 3 May 2017 signed by the defendants:

(1)  HK$19,546,075.48 to Extra Concept Limited (“ECL”);

(2)  HK$5,453,924.52 to Win Castle Limited (“WCL”).

4.  The repayment dates of both loans had been extended. The repayment date for both loans was last extended to 21 December 2019.

5.  It is the plaintiff’s case that the defendants defaulted in making interest payments. By letters dated 4 July 2019, the plaintiff, through solicitors then acting for them, sought immediate payments from the defendants of both loans. The defendants did not comply.

6.  In their Defence, the defendants plead the following points:

(1)  Neither of them can understand English.

(2)  In about December 2016, a Mr Wong from the plaintiff approached them and asked if they were interested in taking out a loan from the plaintiff.[2] Mr Wong was introduced to them by a common acquaintance. As they were in need of money at the time, they agreed to take out a loan of HK$50,000,000 from the plaintiff at the rate of 12% per annum, to be secured by the Properties.

(3)  They attended the plaintiff’s office to sign the necessary documents for the loan. They were met by Mr Lee Kwok Wa, a solicitor acting for the plaintiff. Mr Lee explained to them that they were borrowing HK$50,000,000 from the plaintiff at the rate of 12% per annum and were required to pledge the Properties as security. Mr Lee then asked them to sign a pile of documents, all in English, without explaining to them the contents, even though both the plaintiff and Mr Lee knew that they did not understand, and could not read, English. As they were in need of money, they did not raise any issue and simply signed the documents.

(4)  They were not provided with copies of any of the documents which they signed.

(5)  They did not receive any part of the loan of HK$50,000,000. It does not appear that the defendants dispute that one of the documents which they signed is the Notice of Drawing dated 19 December 2016 with instructions to distribute the sum of HK50,000,000 as set out at [2] above. They say that the contents thereof were not explained to them, and they did not know that they had given, and they did not agree to give, such instructions.

(6)  In about April 2017, Mr Wong contacted them again and offered another loan of HK$25,000,000 on the same terms. As they were still in need of money, they agreed.

(7)  They attended the office of the plaintiff again to sign the documents for this second loan, and was attended by Mr Lee. The narrative of what happened is basically the same as for the first loan. In particular, while apparently not disputing that they did sign the Notice of Drawing dated 3 May 2017, with instructions to distribute the sum of HK25,000,000 as set out at [3] above, they say that the contents thereof were not explained to them, and they did not know that they had given, and they did not agree to give, such instructions. They did not receive any part of the HK$25,000,000.

(8)  They were never given a full set of the documents for both loans that they signed despite repeated requests.

7.  The defendants also allege in their Defence that the plaintiff has acted in breach of the MLO:

(1)  Section 18(1): in that no memorandum in writing has been made in accordance with section 18(2) and signed personally by them within seven days of the making of the agreement, and no note or memorandum has been signed by them before the money was lent or the security was given;

(2)  Section 22(1): this is by reference to an allegation that on about 27 May 2019, an assistant to the defendants received a message from Mr Wong that due to the defendants’ failure to pay interest on time, the plaintiff had decided to restore the interest rate to 24% per annum, which the defendants had never agreed;

(3)  Section 27: the plaintiff had deducted various sums including advanced interest payments and legal costs and disbursements from the loan proceeds.

8.  In reply, the plaintiff makes the following points:

(1)  The defendants are proficient in and have an adequate understanding of English. There had been at least six previous transactions between the 1^st and/or the 2^nd defendants on the one hand, and the plaintiff or its associated companies on the other, where all documents were in English but the defendants did not raise any issues or complaints. Those transactions started from 2013, although Mr Wong first met the defendants in 2011, including a secured loan in January 2016 for US$13 million at the rate of 18% per annum from the plaintiff to the 1^st defendant (called “the USA Loan”). Both defendants also have residences in the United States.

(2)  It was the 1^st defendant who in about December 2016 approached the plaintiff to take out the first loan of HK$50,000,000. The 1^st defendant indicated that he wished to repay part of the USA Loan by obtaining a new loan from the plaintiff at a more favourable rate (i.e. at less than 18% per annum). The first loan at 12% per annum and secured by the Properties was agreed after negotiations.

(3)  At the meeting on 15 December 2016 to sign the documents, attended by Mr Wong and Mr Lee, Mr Lee explained to the defendants in Mandarin the details and nature of the first loan, and went through, in Mandarin, with the defendants the contents of the following documents and their right to seek independent legal advice:

(a)  The plaintiff’s money lender licence;

(b)  Summary of provisions of the MLO;

(c)  The facility letter for the first loan;

(d)  The legal charge;

(e)  The Notice of Drawing;

(f)  Repayment schedule;

(g)  Form on disclosure of existence of third parties by intending borrower.

(4)  After Mr Lee’s explanation, the defendants reviewed the documents and signed the aforesaid documents. They did not raise any requisitions or complaints.

(5)  Immediately after the meeting, duplicates of the signed documents were provided to the defendants.

(6)  Referring to the alleged facts that the defendants are proficient in and adequately understand English, that the contents of the loan documents were in any event explained to them by Mr Lee in Mandarin, that the defendants are experienced borrowers and accustomed to dealing with loan documents in English, it is averred that the defendants were aware of and understood the nature of the loan transaction and the loan documents executed.

(7)  Although the proceeds of the first loan were not advanced to the defendants, they were utilised by the defendants to make various payments as per their instructions given in the Notice of Drawing dated 19 December 2016 (as set out in [2] above). In particular, HK$39,361,533.33 was paid to the plaintiff in part repayment of the USA Loan, and HK$10,000,000 was paid to TLCL to release the mortgage of the Properties, then mortgaged to TLCL.

(8)  That the defendants knew, understood and accepted the instructions to drawdown the first loan is evidenced by two debit notes signed by the 1^st defendant confirming that part of the USA Loan (and interest thereunder) had been repaid, by their payments of interest thereunder until May 2019, by their requests for extensions of time to repay the first loan (which were granted), and by their approach of the plaintiff in April 2017 for another loan.

(9)  Each time when the defendants requested for the documents they were provided without delay.

(10)  It was the 1^st defendant who approached the plaintiff in about April 2017 for the possibility of another loan. He said that he would like to take out a loan to repay another loan owed to ECL and WCL.

(11)  The plaintiff was willing to offer a loan of HK$25,000,000 at 12% per annum, to be secured by the Properties.

(12)  At the meeting on 1 May 2017 to sign the documents for the second loan, attended by Mr Wong, Mr Lee, and the defendants, basically the same matters happened as in the December 2016 meeting.

(13)  The defendants did utilise the proceeds of the second loan with the payments to ECL and WCL, made in accordance with their instructions in the Notice of Drawing dated 3 May 2017. The two payments were by way of two cheques the receipt of which is evidenced by two acknowledgments signed by the 1^st defendant upon collection. The cheques had been banked and the sums withdrawn from the plaintiff’s bank account.

(14)  That the defendants knew, understood and accepted the instructions to drawdown the second loan is evidenced by their payments of interest thereunder until May 2019, and by their requests for extensions of time to repay the second loan (which were granted).

(15)  Regarding the alleged breaches of the MLO:

(a)  For the restoration of interest rate to 24%, that did not happen. Interest rates for loans granted by the plaintiff to the 1^st defendant had mostly been at 18% to 24% per annum. The rate of 12% per annum for the two subject loans was agreed as a matter of goodwill but since the defendants failed to honour the payment obligations, the plaintiff was no longer willing to offer the loan facilities at the favourable rate of 12% per annum, and suggested terminating the existing loans and enter into new loan arrangements at 24% per annum. The defendants did not respond and there was no agreement to increase the interest rate. There was no breach of section 22(1).

(b)  Section 18 had been complied with, referring to various documents.

(c)  Section 27(2) had been repealed and was no longer in force at the time of the loans. It is not admitted that section 27(1) had been breached but in any event section 27(4) provides that a breach does not render the loan agreement unenforceable but only that the relevant amount (i.e. legal costs and expenses) may be recovered or set off against the amount actually lent. The plaintiff agrees to deduct such sums for the two loans.

(d)  The plaintiff also relies on clause 14(1) of the two facility letters on the severability of the clauses to argue that any breach of the MLO does not affect the enforceability of the facility letters or the reliefs claimed.

B.  DISCUSSION

9.  At the trial of these matters, the plaintiff is represented by Mr Justin Lam. The defendants, acting in person, do not appear. I am satisfied that the defendants do have notice of the trial dates and proceed accordingly.

10.  The plaintiff calls Mr Wong and Mr Lee as witnesses. They give evidence in support of the plaintiff’s pleaded case and I accept their evidence, which is inherently credible and supported by contemporaneous documents. I find as facts the matters referred to at [2]-[5] and [8] above, save that I make no findings as to the level of proficiency of the English language of either defendant (as the matters relied upon by the plaintiff, although I accept and find as facts, do not seem to me to show that either defendant necessarily understands English), but this is not relevant as I do find that Mr Lee explained the transactions and documents to the defendants in Mandarin, and the defendants are bound by their signatures in any event.[3] In particular, I find that the defendants knew and understood at all times the nature and terms of the transactions, and, more importantly, the contents of the two Notices of Drawing, having, as I find, been explained by Mr Lee in Mandarin. They therefore knew and understood at all times, and agreed, as to how the two principal sums were to be distributed. Otherwise, their subsequent actions, as stated at [8(8)] and [8(14)] above, would be totally inexplicable.

11.  Since the defendants do not appear, there is no evidence in support of their pleaded factual case set out above, which I therefore do not accept. However, I have to be satisfied that the loans are properly enforceable under the MLO.

12.  As for the alleged breaches of section 18 of the MLO, Mr Lam has taken me through the two facility letters and their annexures which contain all the required particulars of the terms of the two loans as set out in section 18(2). The two facility letters were signed by the defendants on 15 December 2016 and 1 May 2017. Those letters, containing all the required particulars, are sufficient for the purpose of section 18.[4] I find that there has been no breach of section 18.

13.  As for section 22, as per the explanation of Mr Wong set out at [8(15)(a)] above, I find that there has been no breach thereof. Neither loan contains the prohibited term as stated at section 22(1)(c).

14.  As for section 27, Mr Lam has fairly accepted by deducting legal costs and disbursements, section 27(1) has been breached. That is certainly the case for the first loan when legal costs and disbursements of HK$121,800 were deducted ([2(1)] above). While it appears that the full HK$25,000,000 under the second loan was paid over to ECL and WCL ([3(1)] above), Mr Lam says that legal costs of HK$21,250 had been paid by the defendants out of the second loan and so he accepts that there was also a breach of section 27(1) in this regard.

15.  However, as pointed out by Mr Lam, the consequence of breaching section 27(1) is not that the relevant loan becomes unenforceable, but is set out expressly at section 27(4), which provides that the borrower is entitled to have such deducted “costs, charges and expenses” repaid by the lender or set-off.[5]

16.  The plaintiff also accepts that section 27(1) is applicable to the interest deducted initially from the first loan ([2(3)] above). I am not sure if interest falls within “costs, charges or expenses” the deduction of which is prohibited, but the plaintiff is willing voluntarily to deduct this sum from the principal advanced.

C.  DISPOSITION

17.  In the premises, the plaintiff claims repayment of the sums calculated on the bases that the principal sums advanced under the two loans are HK$49,361,533.33[6] and HK$24,978,750.00.[7] Taking into account payments made by the defendants which had been used to repay the principals in part, the plaintiff claims the outstanding principal sums of HK$48,895,828.69 and HK$24,716,262.90. Mr Lam has taken me through the calculations and I am satisfied that they are correct.

18.  Having found the facts as above, with no legal reasons for me not to do so, at the conclusion of the trial, I give the following judgment in favour of the plaintiff:

(1)  The principal sums of HK$48,895,828.69 and HK$24,716,262.90 be paid by the defendants to the plaintiff.

(2)  The sum of HK$384,143.75 being overdue interest in relation to the first loan as of and up to 21 May 2019 and HK$308,269.04 being overdue interest in relation to the second loan as of and up to 3 June 2019 be paid by the defendants to the plaintiff.

(3)  Interest on the principal sums at sub-paragraph (1) above at the rate of 12% per annum from 22 May 2019 (for the first loan) and from 4 June 2019 (for the second loan) until payment be paid by the defendants to the plaintiff.

(4)  If the defendants fail to pay fully the amounts payable under sub-paragraphs (1), (2) and (3) above within one month from the service on them of a sealed copy of the judgment herein:

(a)  They do deliver to the plaintiff vacant possession of the Properties; and

(b)  There be an order for sale of the Properties.

(5)  The defendants do pay the plaintiff the costs of these proceedings (including all reserved costs, if any) on an indemnity basis, to be taxed if not agreed.[8]

19.  For the avoidance of doubt, for the purpose of [18(4)] above, service of the judgment herein on the defendants are deemed to be effected on the third weekday (excluding public holidays) after the sending thereof by the plaintiff by ordinary post to the address which the defendants have provided in their Notice to Act in Person. In case of any difficulties that may arise on service or any steps in carrying out the terms of the judgment, I grant liberty to apply expressly.

20.  I thank Mr Lam for his assistance.