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

HCA 77/2016

[2018] HKCFI 2666

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 77 OF 2016

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JUDGMENT

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Background

1.  At all material times the plaintiff was and is a registered moneylender under the Money Lenders Ordinance, Cap 163 (“the MLO”).

2.  The defendant was the owner of a flat purchased from the Hong Kong Housing Authority in Wong Tai Sin, Kowloon, Hong Kong.

3.  This is a money lender’s action pursuant to Order 83A of the Rules of the High Court for recovery of the principal sum of HK$1,000,000 with interest (“the Loan”) advanced by the plaintiff as lender to the defendant as borrower, pursuant to a loan agreement dated 14 October 2015 (“the Loan Agreement”).  A draw down of the loan also occurred on 14 October 2015.

4.  The defendant defaulted in making the monthly installment in December 2015 and in light of this the plaintiff took out the writ in this action.

5.  In it the plaintiff claims a sum of $1,048,493.15 as at 11 January 2016 with further interest on the sum of $1,000,000 at the rate of 30% per annum from 12 January 2016 to the date of judgment.  These facts are not in dispute.

6.  In essence the defendant’s case is that the plaintiff colluded with an agent who introduced the plaintiff to her for the purposes of takingout a loan in circumstances where the defendant had been tricked into taking out a previous loan which she now had difficulty in servicing.

7.  Further the Defendant says that the loan was illegal and unenforceable under section 24 MLO on the basis that the effective rate of interest was well over 60%, the plaintiff or its agent with whom it was in collusion received from the defendant sums by way of costs, charges or expenses in relation to the provision of the loan in breach of section 27 MLO, the Loan Agreement breached a number of other provisions of the MLO and in particular that the transaction was extortionate under section 25.

8.  The plaintiff’s response in a nutshell is that there was no collusion and the defendant has double counted in its calculation of the interestpayable and in fact the correct interest rate is 34%.  In respect of the claimunder section 27, the plaintiff admits having made certain charges, although not those alleged to have been paid to the agent, and so offers to set these off against the loan and interest it seeks to recover.  The plaintiff maintainstherefore that it has a strongly grounded claim for recovery of the loan and interest on the basis, which is admitted, that the defendant, after only one installment payment, defaulted on the loan.

The defendant's evidence

9.  The defendant bears the burden of proof in relation to her assertions and it was the defendant herself who gave evidence about the events in question.

10.  Madam Chan is 62 and married with four adult daughters.  She lives in a Housing Authority flat in Wong Tai Sin, Kowloon, Hong Kong.  She was educated to Form 1 in Hong Kong and can only read and write simple Chinese and cannot read English.  At the material time she worked in the kitchen at a Chinese restaurant earning approximately HK$9,000 per month.  Her husband, who is 65, is a part time taxi driver and earns about HK$5,000 per month.  Her eldest two daughters, one of whom is married, have moved out of the family home and the two daughterswho remain are students with no income being aged 19 and 18 respectively.  It was apparent from her evidence and the examination of her banks savings account passbook that money is tight.

11.  Her evidence was that she had taken out a loan from Sun Hung Kai Finance in January 2015 for $200,000 and was paying the monthly installments due on this when in early September 2015 she received a call from a Mr Cheung purporting to be from the Housing Authority saying that as she had not paid the land premium on her property her taking of a personal loan such as the one with Sun Hung Kai Finance was contrary to the rules and accordingly her property could be repossessed.  Madam Chan was scared by this and asked for help and Mr Cheung told her to meet him at an address in Kowloon to try to find a solution.

12.  Madam Chan went on 9 September to the address which he gave her which was the office of “Success [International] Mortgage Limited” (“Success”) and whilst there was on the face of it no connection with the Housing Authority Madam Chan said she was scared and did not focus on this.  She met Mr Cheung who repeated that her existing loan was against the rules.  She did not understand this, but he said he could arrange a loanfrom HSBC which would clear the Sun Hung Kai Finance loan and achievea resolution of her problem.  He told her that the interest would be $17,000for the first three months and thereafter $4,000 per month for approximately two years.  Mr Cheung said that this would therefore cost her in money terms less than the $7,474 per month she was currently paying in respect of the Sun Hung Kai Finance loan but at no time did he discuss the size of the new loan with her.

13.  Madam Chan said that because she was very worried she trusted Mr Cheung completely and he said he would contact her again to explore the necessary formalities at which time she would need to bring with her proof of income, proof of her residential address and utility bills.

14.  Some two days later Mr Cheung called and asked her to meet him at an exit from Mong Kok MTR station on 12 September at 3 pm. When she arrived a young man in his twenties, who she had seen a couple of days earlier at the offices of Success, approached her and introduced himself as Mr Chan and said Mr Cheung was otherwise engaged and had asked him to deal with her.  He took her via Tsim Sha Tsui station to the offices of Cash Credit Services Limited (“CCS”) in Cameron Road.

15.  At CCS Madam Chan was asked to complete the formalities at a counter with a female staff member whilst Mr Chan sat on a sofa waiting for her.  The female staff member took the documents Madam Chan had brought with her, including her ID card for copying, and said she would prepare the necessary documentation.

16.  About 5 to 10 minutes later she reappeared with a completed loan document in English as well as other documents for her to sign.  The documentation was not explained to her and she was simply urged to sign them.

17.  After she had signed the documents she was told that the loan was for $700,000 of which $200,000 would be used to pay off the Sun Hung Kai Finance loan.  She was surprised by the size of the new loan but since she was told the installments would be $17,427.76 for the first three months, which was approximately what Mr Cheung had said the loan from HSBC would cost, she did not question the fact that the loan was in fact made by CCS.  Accordingly she was given copies of the material documents and then left with Mr Chan.

18.  Mr Chan then took her by MTR to Admiralty to visit a law firm which he said would be able to release the funds to her.  They arrived at the offices of Ho and Associates in Lippo Centre at about 4 pm.  Mr Chan waited in reception whilst Madam Chan was shown to a conference room where she met Mr Ringo Li who gave her his card.

19.  Mr Li said that they would discharge the Sun Hung Kai Finance loan and asked her to sign some documents which only later her solicitors told her included two HSBC cheques for $336,716.72 and $105,000 respectively (the latter being a cash cheque) and an authority for Ho and Associates to make payment of the first three installments on the new loan totally $52,283.28.

20.  Madam Chan did not notice what she was signing and when she was asked to acknowledge receipt of the two cheques which in aggregate came to $441,716.72, she assumed the difference between that and the $500,000 due to her after discharging the Sun Hung Kai Finance loan of $200,000 was the result of legal or other handling charges.

21.  Mr Chan told her that she needed to pay the two cheques into HSBC to complete the transaction so that her property interest could be protected.  Accordingly, she went to a local HSBC branch also on Cameron Road where she cashed the cheque for $105,000 and at Mr Chan’s request gave him the money for which she received no receipt.  As for the other cheque Mr Chan told her to deposit that in her bank account and then to call him on the following Monday, 14 September, to confirm that it had been cleared.

22.  This she did and Mr Chan then told her that she needed to retain enough to pay the first three installments but the rest should be withdrawn and given to Mr Chan.  She did this when she met him again at his request on 16 September. In fact she withdrew $283,000 from her account at Bank of Communications so that she retained the sum of $53,716.72 to pay the first three installments.  Again, Mr Chan gave her no receipt.

23.  Thereafter in October Mr Cheung and Mr Chan called her at different times to tell her that the process of clearing her unauthorized borrowing and thereby releasing her property from the threat of repossession was in process at HSBC.  During one of these calls Mr Cheung said that because she owned the property if she was to use the property as security for her loan she would pay a lower interest rate.  Madam Chan did not understand this and was worried it would mean her in effect selling her property but he reassured her that that would not be the case; it would simply be that her title deeds would be held at a law firm for three months after which they would be released as the whole process of clearing the blight on her property, referred to as "Sheung Wai", would by then have been completed.

24.  Because she still believed Mr Cheung was from the Housing Authority and he was suggesting a lower interest rate, she said she would be prepared to apply for a new loan at a lower interest rate and so Mr Cheung said he would be back in touch when he had selected a finance company.

25.  A few days later he called to say that this has been arranged and she should meet Mr Chan again at Tsim Sha Tsui MTR station and that she should bring with her the title deeds to her property.  Accordingly she met Mr Chan at 10:30 on 14 October and he took her to the offices of the plaintiff at Room 705 7/F Jordan Road.  She says that Mr Chan led her to the conference room without needing the assistance of anybody from the office and when she sat down he stood behind her.

26.  After about 5 minutes a lady came in to the room to complete the procedures.  She did not give Madam Chan a name card but produced a pile of documents for her to sign to obtain a loan of $1,000,000.  Madam Chan said she was urged to sign the documents without being given any explanation of them including about the interest rate or repayment schedule.  The whole process took no more than 10 minutes during which time the lady in question and Mr Chan remained standing.  She was not given copies of any of the documents.

27.  When she left Mr Chan said he would take her to a law firm to complete the formalities and led her to the offices of KB Chau at Wing On House at 71 Des Voeux Road, Central.

28.  On arrival Mr Chan left her for 5 minutes, apparently to have asmoke, and after about 20 minutes a man in his twenties with glasses arrived, asked her if she was Chan Suk Fong and then took her into a separate room.  He introduced himself as a staff member of the plaintiff and gave her more documents to sign and told her that she should not seek to repay the loan within three months or there would be a penalty interest charge.  Thereafter they returned to the reception area.

29.  After another 15 minutes a female staff member Lau Wing Szeof KB Chau asked her to go to a separate room and gave her her card.  She asked Madam Chan for her title deeds and then left the room saying she was going to prepare some documents.

30.  About 10 minutes later she returned with a large number of documents and confirmed that the defendant was making a loan of HK$1,000,000 at an interest rate of 2.5% per month.  She said it had to be repaid in full after 12 months but that only interest would be charged for the first 11 months with the result that the principal plus interest, amounting to $1,000,025, would be payable in the last month. She said $750,000 would be released for payment of the CCS loan and there would be a charge of $37,500 for legal fees.  She was then asked to sign the documents which she did and she was given copies of those documents including some she had signed previously in the office with the man in glasses.  She did not however give Madam Chan back her title deeds.

31.  At this point Ms Lau gave Madam Chan two cheques drawn on Wing Lung Bank, both payable to Madam Chan, one for $113,000 and crossed “Account payee only” and one for $100,000 without those words.

32.  Mr Chan then took Madam Chan to Wing Lung Bank at BankCentre, Mong Kok where she cashed the cheque for $100,000 and gave the money to him.  He told her that she needed to deposit the other cheque into her bank account and that she should contact him when it had cleared so that they could meet and she could hand him $110,000 of the $113,000 deposited.

33.  When she subsequently called him to say that the cheque had been deposited he told her to ensure that she had retained sufficient for three months’ interest in her account and then suggested they meet outsidethe HSBC branch at the junction of Nathan Road and Argyle Street for the purposes of her handing him the $110,000.  Again he gave her no receipt but told her that she would get her title deeds back in three months.

34.  Subsequently Madam Chan inquired of both Mr Chan and Mr Ringo Li at Ho and Associates whether there was a balance due from thedischarge of the Sun Hung Kai Finance loan but she received no satisfactory response.  Eventually in November when she called Mr Ringo Li again, hetold her that there was a balance due to her of $29,617.  She told Mr Chan this and he told her to go to Ho and Associates and get this refund.

35.  When she went to Ho and Associates on 19 November she was in fact given two cheques, one for $29,617, and one for $34,855.52 which she assumed represented the balance due to her after discharge of the Sun Hung Kai Finance loan but her solicitors subsequently informed her that the latter cheque represented the refund of two months’ installment payments ($17,427.76 × 2).  Both cheques were cash cheques which she deposited into her account on the same day.

36.  The following day she reported this to Mr Chan and he told her that those two cheques when combined with the $53,716.72 left from the previous CCS loan meant she had a total of $118,189.24 and that she should retain $75,000 for payment of the first three installments to the plaintiff and withdraw $42,500 to be handed to him to complete the process of “Sheung Wai”.

37.  Accordingly, she met Mr Chan on the same day and handed over the $42,500 and has never seen him again.  All of her attempts to contact Mr Cheung and Mr Chan have failed.

38.  Then in December a Miss Chan who purported to be from HSBC said that she could help her fully settle the loan with the plaintiff.  Because she had been led to believe that HSBC were involved in rectifyingthe irregularities with her property arising from her original loan transactionshe believed her and at her instructions went to an address in Chatham Road.  

39.  There she met a Mr So who told her that Success was not related in any way to the Housing Department, that the funds that had been taken from her were not deposited for the purposes of “Sheung Wai” and that she had been defrauded.  He then tried to persuade her to apply for a property loan so that she could pursue a claim against Success.

40.  At this point she discussed the matter with her family, sought advice from her LegCo member, and then reported the matter to the police.  

The plaintiff's evidence

41.  When it came to the evidence filed on behalf of the plaintiff there were four affirmations in total, three from former employees, Tai SiuMan (“Miss Tai”), Chan Ka Ho (“CC”) and Leung Kai Chung (“Mr Leung”) as well as one from Lau Wing Sze (“Ms Lau”) of KB Chau, the solicitors.  

42.  I was very concerned whether the evidence of the first three named witnesses were really their own.  None of the witnesses spoke or read English, there were no translations of their affirmations and whilst they each said that the affirmations had been read to them before their signature, it is striking how a number of paragraphs in each are identical, giving rise to an inference that they were prepared for them, such that theywere certainly not their own account of events.  Similarly, neither Miss Tai nor CC in particular had a very good recollection of their evidence and at times seemed unsure of its extent.  Their recollection of events was very sparse.

43.  Mr B K Ho went further and urged me to be deeply suspicious of the affirmations because their signature pages are entirely separate and not consecutively numbered notwithstanding there having been plenty of room for their signature on the last page of their statements.  This is indeed unusual and unacceptable in terms of process.

44.  In the case of affidavits it has been a long established practice that the jurat should follow immediately after the end of the text.  Indeed the footnote to the High Court form for affidavits states that the last paragraph and the jurat should appear on the last page.  Whilst in Eric Edward Hotung v Ho Yuen Ki HCA 857/2011 (5 April 2016) the court heldthat there was no rule requiring the jurat to follow immediately after the end of the text and not to be placed on a fresh page the Court in that case was referred to the decision of the English Court of Appeal in Rajankumar Nemchand Shah Illa Ketchi Shah v Habib Bank AG Zurich, 1988 WL 1608840 in which Stocker LJ held that the jurat on a separate page is defective, but on the facts the learned Master in Eric Edward Hotungreached the conclusion that it was highly unlikely that there could be missing pages before the jurat.

45.  Whilst witness statements are not affidavits I think the same practice should apply and with respect to the learned Master’s decision in  Eric Edward Hotungthe position here is somewhat different as there was plenty of room for thesignatures to be placed on the same page at the end of the witness statement and furthermore the pages with the signature were not even consecutively numbered with the text of the statements.  This leaves open the question of whether the statements in question could have been shortened, lengthened, or otherwise altered with impunity and the more so where the witnesses do not read English and showed no great familiarity with their statements.

46.  This greatly troubled me since it is a cardinal principle that witness statements should be stated in a clear straightforward narrative form and should be in the language of the witness, his ipsissima verba.  Hong Kong Civil Procedure (“HKCP”) 38/2A/7.  This was not done here.  

47.  The rules also require that in cases where the witness cannot speak or understand English the solicitor concerned should translate and explain the statement to their intended witness before the signing and the solicitor should so declare on the face of the statement that he has done so.  HKCP 38/2A/8. This was not done here.

48.  Similarly the rules require that in cases requiring a statement of truth it should either be in English or in Chinese and in the language of the statement maker and where the witness cannot understand English or Chinese the document must also contain a certificate made by the person who translated the statement to the maker.  Practice Direction19.3, §§4 and 5.  Again this was not done here. 

49.  The fact, as I have said, that both Miss Tai and CC had difficulty recollecting what was in their statements adds to my sense of unease in placing any reliance at all on their evidence.

50.  I was surprised too that the plaintiff seeks to enforce this loanby calling two very junior employees, who clearly had no real authority orindeed understanding of the process, even at their own end, and this adds tomy view that their evidence should be treated, at best, with a high degree ofcircumspection.  For instance while both describe themselves as managers it was clear from their evidence that their authority was limited and the tasks they performed at a low level.  Whilst Miss Tai said she believed CC approved the loan in question, CC said that he had no such authority and referred to the involvement of a loan approval team, the details of which he could not elaborate.

51.  It is also interesting to note that both CC and Miss Tai, like Mr Leung, have now left the plaintiff’s employment so that in fact there wasno current employee of the plaintiff giving evidence about what transpired at the time.

52.  I note here that both Mr Leung and CC say that they were scolded by their boss about this loan when it went into default but CC did not even know his boss’s name and merely said that she was female.

53.  CC’s evidence was to deny any knowledge of Success and instead said that he took a cold call from Madam Chan who telephoned asking for a HK$1,000,000 loan as a result of which he introduced her to the plaintiff’s office and arranged for Miss Tai to see her.  His subsequent involvement was to follow up on the document side and so he collected various documents from the plaintiff’s office and attended at KB Chau.  He lists these documents in his affirmation but when asked about them he could not remember whether these were in fact all the documents in question which again points to his lack of familiarity with what was included in the affirmation.

54.  It is his evidence that he first met Madam Chan at KB Chau’soffices and invited her to a room where he explained the nature and purposeof the documentation before asking her to sign them.I found this evidence hard to accept given CC’s limited role at the plaintiff and the fact that he could not read English language documents.

55.  Miss Tai’s evidence was in some ways equally unsatisfactory.  She said she was assigned to “finalize” a loan on 14 October and on cross examination said the loan had been approved by CC but then says that the plaintiff had minimal information for the loan application as the appointmenthad been made by phone which suggests to me that things were at an early stage, she was not there to finalize a loan and nobody had at that stage approved it, notwithstanding that she says she told Madam Chan it had been approved.

56.  On the critical question of whether Madam Chan was accompanied when she came to the appointment Miss Tai’s evidence is thatshe cannot recall, which I find surprising given the level of detail otherwise provided in her affirmation including six detailed documents which she says she recalls explaining to her and asking her to sign.

57.  Mr Leung who was the other witness called by the plaintiff joined the plaintiff two weeks after the material events and has now also left the plaintiff’s employment.  His affirmation consisted very largely of hearsay evidence based on what Miss Tai and CC had told him and so I place no reliance on his evidence.

58.  Ms Lau Wing Sze gave evidence pursuant to a subpoena duces tecum.  She works at KB Chau Solicitors and her evidence was that on 14 October 2015 she handled the drawn down of the loan to Madam Chan acting for the plaintiff.  She said she had received instructions from the plaintiff that same day and it took her about 30 minutes to prepare the Loan Agreement.  She said Madam Chan arrived at her firm in the afternoon and at that time CC was also present representing the plaintiff.  She had met him before.  Beyond that Ms Lau had no recollection of the details of who was present.

59.  She said she explained all of the documents to Madam Chan and obtained her signature on the Loan Agreement.  She said she did not know if Madam Chan knew English and she could not recall if Madam Chan asked her any questions.

60.  She confirmed that in accordance with her instructions she took custody of Madam Chan’s title deeds.

61.  She said that Madam Chan having signed the documents, her firm’s finance department issued cheques to her, but not before deducting HK$750,000 which KB Chau held as stakeholder to settle the loan from CCS.  She said that she subsequently asked CCS for an updated repayment figure and received a reply from a solicitors’ firm which detailed a shortfall of $33,177.66 and she then informed Madam Chan and the plaintiff about this.  

62.  When asked about this contact, which Madam Chan denies, she said she did not remember how she contacted her, but her usual practice would be to do so by phone, and she confirmed she had Madam Chan’s telephone number.

63.  She was referred to a completion statement dated 14 October 2015 which showed the retention of the aforementioned $750,000, a deduction of $37,000 in respect of an upfront fee payable to the plaintiff and showed a balance paid out in cash to the defendant of $213,000.  She explained this was accurate as to the position on 14 October.

64.  She was then referred to a further completion statement dated 14 November 2015 which showed that in addition to the $750,000 held as stakeholder for the purposes of repaying the CCS loan, there was a deficit due from the defendant of $33,677.66 representing $30,177.66 being the additional sum due to CCS and a further $3,500 being a legal charge to Messrs Wai Fung and Co.  This document on its face asks the defendant to “kindly credit our account on or before 12 November 2015”; this notwithstanding the document is dated two days later.

65.  Ms Lau could not explain this nor the fact that there was a deposit slip dated 6 November 2015 (8 days before) showing the sum $33,677.10 (ie a slightly different amount) had been paid to KB Chau and Co.

66.  On cross examination Ms Lau said she had six years of experience, appreciated that the transaction in question was not a mortgageand did not think about why she took custody of the title deeds; it was simply that she had been instructed to do so.  This seemed less than honest to me in view of one of the letters Madame Chan was asked to sign to which I refer below.

67.  In relation to the discharge of the CCS loan, Ms Lau confirmedthat on 11 October she had written to Ho and Associates explaining that she acted for the defendant in discharging the CCS loan, but stressed that that was the extent of her instructions on behalf of the defendant.  Ms Lau said that she first learnt of the shortfall above $750,000 on 28 October 2015, and at that time she informed the plaintiff and the defendant, the latter by telephone, about this.

68.  Mr B K Ho for the defendant put it to her that she did not do so and referred her to the terms of the defendant’s solicitors’ letter to KB Chau of 18 July 2016 stating that the defendant never paid the shortfall in question and was never asked to; they therefore asked KB Chau whether there was any evidence to support Ms Lau’s version of events.  Tellingly, says Mr Ho, there was no response.

69.  Ms Lau said she disagreed with the defendant’s solicitors, butdid not remember her reaction at the time, and in any event she would havepassed the matter to her boss to deal with.  She said she only knew the sumin question had been deposited but there was no record of who deposited it.  

70.  Mr Ho referred Ms Lau to the various follow up letters inquiring about the matter which eventually culminated in a response from KB Chau dated 4 October 2018 confirming as follows:

“ Upon checking the correspondence and records of our file, the Completion Statement dated 14 November 2015 was delivered to Gainwealth and Chan Suk Fong, however our staff does not recall the mode and the exact date of delivery.”

71.  Ms Lau had her file with her in court and said that notwithstanding the statement made in that letter there was nothing on the file which confirmed this fact.  Nor could she throw any light on how Madam Chan could have deposited the shortfall on 6 April when they say their records show she was sent a copy of the Completion Statement dated eight days later.

72.  Further she could not explain the discrepancy between the exact figure shown on the Completion Statement of $30,177.66 and the sumdeposited some eight days earlier of $30,177.10.  Ms Lau could only pointto other mistakes she had made in documents around this time, evidencing the fact that at the time, she said, she was very busy and working a lot of overtime.

73.  Ms Lau’s evidence was unsatisfactory in a number of respects.  Her recollection of events was not clear and she was evasive at times when she responded to questions.  I found her evidence as to the explanations she gave Madam Chan to be particularly unconvincing, given Madam Chan’s obvious age and level of education and I found it surprising that Ms Lau did not even recall if she could read English.  Furthermore if she really explained the documents to Madam Chan, as she says, I find it surprising that she would have included in her explanation provisions which are clearly breaches of the MLO and which therefore raise questions as to the propriety of the legal advice being provided to the plaintiff.

74.  I was further troubled by Ms Lau’s seemingly happily including in the Completion Statement she prepared a $37,000 charge for the plaintiff which is again clearly a breach of the MLO and which claim has now been abandoned by the plaintiff.

75.  Her evasiveness both in the correspondence and in court overher communication to the defendant in respect of the shortfall is surprisingand the fact that KB Chau’s letter suggested that the file would bear out herversion of events when it does not, is further evidence of an unwillingness to confront honestly the pertinent issues in this case.

76.  Absent Ms Lau being able to give any evidence of who deposited the cheque for $30,177.10 and given it was deposited before a Completion Statement was sent to Madam Chan, and then for a slightly different amount, I accept Madam Chan’s testimony that she did not make the payment in question and this notwithstanding Mr Cheng’s submission onbehalf of the plaintiff that I should infer that she did so given the aggregate sums withdrawn from her bank account in the period between 17 October and 30 October 2015. Ms Lau’s evidence was that she could not have informed Madam Chan of the deficit before 28 October and I accept Mr Ho’s submission that it is far-fetched to infer that Madam Chan anticipated such a shortfall and was withdrawing sums in anticipation of having to pay it.

The defendant’s case

77.  The defendant’s case as set out in the Re-Re-Amended Defence is basically that the Loan Agreement was in contravention of the MLO which rendered it unlawful and unenforceable.

78.  The essence of the defendant’s case as pleaded is that Mr Cheng made two misrepresentations to the defendant.  The first representation was that the Housing Authority was entitled to regain possession of the defendant’s residential home because she had taken out a personal loan when the land premium had not been paid as a result of which the defendant entered the Loan Agreement with CCS.  The second representation was the statement that the interest rate would be lower if the defendant used her property as security for taking out a further loan which the defendant says she relied on in taking the subsequent loan from the plaintiff.  The basis of the defendant’s case is that there was collusion between the plaintiff, Mr Cheung, and Mr Chan who were the agents who introduced the defendant to the plaintiff.

79.  It is further alleged that the Loan Agreement provided for penal interests taking account of the sums paid over to Mr Chan.  It is said that the effective rate was in fact 68.4% per annum and by reason of section 24(2), this is unlawful and unenforceable. Furthermore it is said that the sums of $42,500, $100,000 and $110,000 as well as the $37,000 deducted by KB Chau were sums prohibited under section 27(3) and section 29(10) since the receipt of such sums amounted to costs, charges expenses, remuneration or reward and such that the Loan Agreement is unlawful and unenforceable. Alternatively it is pleaded that the Loan Agreement is extortionate under section 25 and the court should reopen the transaction in order to do justice between the parties.

80.  It is further pleaded that included in a Chinese repayment schedule prepared by the plaintiff and also signed by the defendant on 14 October 2015 were a number of specific terms which offended the MLO.  First, Clause 1 which said that if any cheque bounced the borrower agreedto pay an administrative fee of $500/transaction.  Secondly, Clause 2 which provided that in default of payments the borrower agreed to pay a penalty on top of the accrued interest.  Thirdly, Clause 5 which provided that any alteration of the terms and conditions of the agreement would require the borrower to pay an administrative fee equivalent to 1% of the original loan amount or a minimum of HK$5,000.  Fourthly, Clause 6 which provided that in case of early repayment of part of the loan, the borrower was requiredto pay an administrative fee equivalent to 2% of the remaining loan amount.  Fifth, Clause 8 which provided that in the case of early full redemption of the loan, the borrower would be liable for all the legal costs and expenses and agreed to pay an administrative fee equivalent to 2% of the loan amount.

81.  In response to this the plaintiff says that they never relied on these clauses in the present action suggesting by inference therefore that they are not relevant to the Court’s assessment.  I do not accept this as being an adequate response.

82.  The defendant also pleads other breaches of the MLO.  Firstly that in contravention of section 18(1), the plaintiff failed to deliver to the defendant within 7 days a note or memorandum in writing of the agreement made in accordance with section 18(2) and that this renders the Loan Agreement unenforceable.  Secondly, that in contravention of section 18(2), the requisite note or memorandum if any did not set out the true rate of interest charged on the loan.  Thirdly, in contravention of section 21, the defendant was required to give at least one month’s advance notice in writing for early repayment or each partial payment, and that the defendant would have to pay an administrative fee equivalent to 2% of theremaining loan amount and each repayment amount had to exceed $100,000. Fourthly, in contravention of section 22, the defendant had to pay default interest at a rate of up to 5% per month on the outstanding loan and overdue interest.

83.  The plaintiff’s response to these allegations was simply that all of the information required by section 18 was included in a schedule to the Loan Agreement.

84.  It is finally pleaded that in contravention of section 6 of the Unconscionable Contracts Ordinance the defendant was required to give at least one month’s advance notice in writing for early repayment, or each partial repayment and that it had to pay an administrative fee equivalent of 2% of the remaining loan amount and each repayment amount had to exceed $100,000.

The Court’s decision

85.  In this case I am faced with an allegation of collusion between the plaintiff and both Mr Cheung and Mr Chan, the latter of whom is said to be the agent who introduced the defendant to the plaintiff.  There is no dispute that an agent was involved.  CC in his evidence concedes as much, but there is a good deal of dispute as to the agent’s role.  Madam Chan says that Mr Chan was with her every step of the way so to speak, whereas the plaintiff’s case is that she made the running herself in relation to the loan application and the various meetings she attended.

86.  I am unable to accept the plaintiff’s evidence that Madam Chan made contact with the plaintiff herself an agent having admittedly been involved in the process; nor can I accept the plaintiff’s evidence that Madam Chan attended the offices on her own, not least because Miss Tai, who met her, said that she could not remember whether she was accompanied or not.  The plaintiff chose not to call Mabel, who Miss Tai said opened the door to let Madam Chan into the reception area and who might therefore have been able to shed further light on this.

87.  I have already referred to the unreliability of the plaintiff’s testimony generally and so I accept Madam Chan’s evidence that Mr Chan played an instrumental role in introducing her to the plaintiff so that she could obtain the loan she did.  Not surprisingly since Mr Chan has disappeared and the plaintiff denies any involvement with or indeed knowledge of him there is no evidence as to what happened to the monies allegedly given to him either in relation to the present loan or the previousCCS loan.  There is no evidence therefore of what if any of this sum foundits way back to the plaintiff or indeed whether Mr Chan recovered anything by way of extra payment for his services from the plaintiff.

88.  There was nothing by way of credible testimony to counter the defendant’s evidence at the way she was led on by Mr Chan and I haveconcluded that the plaintiff was in collusion with Mr Chan and through himMr Cheung in breach of section 29(10) of the MLO as that phrase has beenunderstood in the authorities.  I refer here to the judgment of BokharyNPJ in HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191, where he concluded on the facts of that case that it was plain that the applicant and the money lender were acting in concert and surreptitiously in a dishonest enterprise to extract money from the victim; he held that fell fairly and squarely within the meaning of collusion under section 29(10).  On the facts of the present case a fortiori.

89.  Deputy District Judge Simon Ho in Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500 reviewed the judgments in Wong Kwok Wai including Tang PJ’s reference to the pithy summary of collusion as “playing the same game”, used by Sakhrani J in Famous Zone Electronics Ltd v Hongkong and Shanghai Banking Corp Ltd [1998] 3 HKC 723 and said this in relation to the facts in that case:

“ In my view, to qualify as the collusion under s.27(3) and (4), 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. I take this to be the essence of the term ‘collusion’ as appeared in s.27(3) and (4) to meet with the statutory intent and purpose, and in accordance with a test of ‘playing the same game’ as expressed by Tang PJ in Wong Kwok Wai.”

90.  It is clear to me that the plaintiff and Mr Chan and Mr Cheung were playing the same game; their roles were inextricably linked and designed to burden the defendant with a debt she could not afford to service and to do so at a very considerable cost to her and conversely at a very considerable advantage to the plaintiff.

91.  Having concluded that there was collusion between the plaintiff and Mr Chan and Mr Cheung, I have to consider the effect of this on the transaction between the parties.

92.  I am satisfied on the evidence that the defendant has been the victim of unscrupulous lending practices.  It is wholly unacceptable that a person of low income and poor education should be taken advantage of to the extent that this defendant has been, such that from servicing a debt of under $200,000, she was, less than a year later facing a debt of $1,000,000 payable after only 12 months it having cost her $640,500 to be put into this position.  It is inconceivable to me, even ignoring the payments to the agents involved here how the plaintiff in this case, knowing that the defendant had an existing debt of $700,000 and an income of only around $10,000 a month could reasonably have proposed her taking a loan of $1,000,000 with interest payments of $25,000 per month with the whole loan being repayable after 12 months.  This to my mind of itself manifestly contravenes ordinary principles of fair dealing, such as to bring the transaction squarely within the scope of section 25 MLO.

93.  In this case I find that the plaintiff in collusion with others took advantage of the defendant with a view to being in a position to enforce the loan against her property when she failed as she inevitably would, to repay the loan after 12 months.  In so doing it conspired with KB Chau to have the defendant execute a number of self-serving documentswhich on the evidence I have heard I am satisfied were never satisfactorilyexplained to her by CC or Ms Lau; it would be most surprising if they were given their terms and their disregard for relevant provisions of the MLO.

94.  The documents in question included:

(1)   a letter declaring that she had not paid any fees to the plaintiff, nor anybody on its behalf, but further that if she had then such fees were paid willingly and to the best of her knowledge the recipients had no relationship to the plaintiff;

(2)   a letter instructing the plaintiff’s solicitors to register the LoanAgreement at the land registry against her property “to protect the interests of the Lender and to show sincerity”;

(3)   a letter to KB Chau saying that not only had KB Chau interpreted and explained all relevant documents to her but also that they had invited her to take separate legal advice but she had declined seeing no need for independent advice “despite every chance having been offered to me…to do so”;

(4)   a letter to KB Chau confirming the terms of the loan and the deduction of “the legal fee and registration fee for the discharge”;

(5)   a loan agreement (contract no GWL/1510-398A26-330277) which includes provision for an interest rate of up to 5% in the event that she goes into default;

(6)   a letter to the plaintiff confirming that in the event the loan is paid off in three months the plaintiff may recover interest at 5% per month for the period prior to it being paid off.  Further that any request for change which the plaintiff accepts to any term would be subject to a charge of $1,000.  And that inter alia any intention on her part to separate or divorce her spouse or any application for related procedures would represent a breach of contract.

(7)   a Chinese language repayment schedule including terms prepared by the plaintiff and signed by the defendant which include the following:

1.   For any bounced cheque, the borrower and Guarantor had to pay administrative fee of HK$500 per transaction;

2.   In default of payment, the borrower and guarantor agreed to pay additional interest and penalty on top of the accured interest:

5.   For any alternation of the terms and conditions of the agreement, the borrower and guarantor agreed to pay administrative fee equivalent to 1% of the original loan amount, or a minimum of HK$5,000;

6.   In case of early repayment of part of the loan, the borrowerwas required to pay administrative fee equivalent to 2% of the remaining loan amount and each repayment amount must exceed HK$100,000.  No early partial repayment is allowed during interest-bound period.

7.   Should there be any early redemption, the borrower has to give one-month written notice and pay off all the loan before redemption of the relevant property.  Borrower has to bear all the legal costs and expenses for the redemption.  In this regard, the borrower has to give one-month writtenredemption notice (according to receipt date of the written notice).  Otherwise, the borrower has to pay one-month interest in lieu thereof.

8.   In case of early redemption of the entire loan, the borrower is liable to all the legal costs and expenses and both the borrower and the guarantor agree to pay administrative fee equivalent to 2% of the loan amount.

95.  The scale of abuse that these documents exhibit suggest the need for greater scrutiny of the plaintiff’s business and indeed the support it has received from KB Chau.

96.  I would only add in this context that I endorse the obiter comment of Bokhary NPJ in Wong Kwok Wai where he had this to say about the sort of unscrupulous conduct to which the defendant in this case has been subject: “… the more rapidly and firmly this kind of heartless exploitation is put down as far as it is within the law’s power to do so, the better protected will be the vulnerable people like the borrower in the present case.”

97.  The above documents indicate breaches of section 21 which prohibits charging additional amounts for repayment and section 22 which makes the contract illegal if it provides for increased interest payments in the event of default, and this in addition to the breaches I have already referred to of sections 24, 25, 27 and 29 MLO.

98.  Mr Ho says that the combined effect of the improper payments made to the agent in relation only to the present loan and the contractual interest rate leads to an effective interest rate on the loan of 68.5% which being over 60% is itself sufficient to bring the transaction within section 24(1) MLO as being extortionate.  Mr Cheng takes issue with this calculation and says that it represents double counting on the part of the defendant since one needs to deduct the sums improperly charged before calculating the effective rate of interest and that in any event section 27(4) MLO provides the remedy of set-off for such payments so that they cannot be regarded as part of the interest payable on the loan.

99.  I do not accept that latter submission.  It seems to me that looked at from the perspective of the plaintiff, my having concluded that there was collusion, the effect of the transaction was that in return for a loan of $1,000,000 charges were levied in respect of the present loan itself of $289,500 in addition to interest payments of $300,000 during the life of the loan.  In other words, the defendant would be charged a total of $589,500 amounting to 58.95% of the loan amount.  Whilst this may be just under the 60% threshold set in section 24(1), this of course ignores the payments made to Mr Chan in connection with the CCS loan.  Taken together and given my finding on collusion I have no difficulty in concluding that the effective rate of interest in this case exceeds 60%.

100.  I am satisfied for this purpose that the payments improperly charged are within the definition of interest in section 2 of the MLO which is very broadly drawn and it is clear to my mind that the legislation is designed to catch this sort of unscrupulous behaviour.  If it were otherwiseit would be open to an unscrupulous money lender to load the charges and lower the interest rate on the basis that if he/she is caught they would still have the ability to pursue the principal and interest after applying the set-off in question.

101.  I find therefore that the loan in question is illegal and unenforceable as being a breach of section 24 in imposing an excessive interest rate above 60%, taking account of the collusion I have found and my finding that payments to agents can properly be included in the definition of interest under section 2 in arriving at the effective interest rate.

102.  I also find too that the loan is illegal and unenforceable pursuant to section 22 by virtue of the repayment schedule providing for a higher rate of interest, namely up to 5% per month in the event of default of the borrower.

103.  Even if I had excluded the charges in relation to the CCS loan, I would have concluded that the effective rate of interest was nonetheless over 48% and therefore prima facie extortionate under section 25 sufficient to permit the court to reopen the transaction in question.

104.  Furthermore the cumulative effect of the plaintiff’s conduct, which I have described and its complete disregard for the provisions of the MLO, would if I had needed it, also led me to find that even were the interest rate under 48%, the transaction in question manifestly contravenes ordinary principles of fair dealing such that the court has the right under section 25 to reopen the transaction and to make such orders and give such directions as the court may think fit.  In those circumstances I would have found the conduct of the plaintiff so egregious that I would have required the defendant to be put back in the position she would have been had she never been approached by Mr Cheung in the first place.

105.  Accordingly, the Plaintiff’s claims against the Defendant be dismissed and I make a costs order nisi that the plaintiff pays the defendant’s costs, to be taxed if not agreed.