MAZEL LTD v. HAO LIN INVESTMENT (HONG KONG) LTD

HCMP 853/2020

[2024] HKCFI 282

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 853 OF 2020

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REASONS FOR DECISION

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A. THE APPEAL

1.  This is the hearing of the Defendant’s appeal against the decision of Master R. Lai dated 23 August 2023 (the “Decision”)  allowing the Plaintiff to enforce the terms set out in the Schedule annexed to a consent order dated 3 August 2020 (the “Tomlin Order”).

2.  This Court is of the view that the Decision of Master R. Lai is correct and cannot be faulted.  On 27 December 2023, this Court dismissed the present appeal.  Now I give reasons for this Court’s decision. 

B.  MATERIAL FACTS

3.  The Plaintiff and the Defendant entered into a loan agreement dated 18 May 2018 (the “Loan Agreement”)  in respect of a loan in the amount of HK$106,000,000 (the “Loan”)  which is secured by a legal charge registered in the Land Registry by Memorial No. 18061401310047 (the “First Legal Charge”)  in respect the Defendant’s property known as, i.e. Penthouse B on the 33^rd and 35^th Floors including the Flat Roof(s)  thereof of Block 3 and Private Carparking Space Nos. 71 and 72 on Level 3 of Parc Palais, No. 18 Wylie Road, Kowloon, Hong Kong (the “Property”).

4.  It is undisputed that the Defendant failed to repay the Loan according to the terms of the Loan Agreement.

5.  On 16 June 2020, the Plaintiff issued the Originating Summons against the Defendant seeking the repayment of the Loan and the interests thereon.

6.  Pertinently, on 3 August 2020, the parties (with the assistance of their respective legal representatives)  reached a settlement on their disputes by way of the Tomlin Order.

7.  The terms of the settlement agreement (the “Settlement Agreement”)  were recorded in the Schedule to the Tomlin Order:

(1)  The Defendant do pay the Plaintiff the aggregate sum of HK$110,869,013.53 (the “Settlement Sum”)  being outstanding principal and interest which shall be payable by the Defendant by way of solicitors’ cheque(s)  to the solicitors for the Plaintiff in the following manner:-

(a)  HK$55,208,7555.89 be paid on or before 31 August 2020; and

(b)  the balance of HK$55,660,257.64 be paid on or before 30 September 2020;

(2)  The Defendant do pay the Plaintiff’s costs of these proceedings agreed at HK$32,500.00 to be paid on or before 30 September 2020;

(3)  Upon full payment of the Settlement Sum and the agreed costs as aforesaid:-

(a)  the solicitors for the Plaintiff shall within 17 days of such full payment deliver to the solicitors for the Defendant:-

(i)  First Legal Charge together with the relevant Certificate of Registration of Charge issued by the Companies Registry; and

(ii)  Discharge of the First Legal Charge duly executed by P and properly attested dated not later than 30 September 2020 together with the signed and undated Memorial form thereof, the Form NM2 duly signed and undated and a certified copy of the said Discharge.

8.  Hence, the parties’ contractual obligations under the Loan Agreement were subsumed or turned into their respective contractual obligations under the Settlement Agreement.  Unless there are vitiating factors which oblige the Court to set aside the Settlement Agreement, the Plaintiff’s and the Defendant’s contractual obligations are governed by the Settlement Agreement.

9.  The Defendant did not perform the Settlement Agreement.

10.  Hence, the Plaintiff filed a summons dated 18 April 2023 (the “Summons”)  to enforce the Settlement Agreement on the ground that the Defendant has never settled any of the sum due thereunder.

C.  ANALYSIS AND DETERMINATION

11.  The Plaintiff’s claim is straightforward.  It prays for the performance of the Settlement Agreement.

12.  The Defendant now alleges that the Tomlin Order should be null and unenforceable by reasons of the potential violation of the Money Lenders Ordinance (Cap. 163)  (the “MLO”)  in the making of the Loan Agreement.  The Defendant may or may not be able to set aside the Loan Agreement on the basis of its MLO arguments.  However, it is not clear to this Court on what legitimate basis the Defendant could set aside the Settlement Agreement.

13.  First, I am of the view that the parties were all properly legally advised and represented when entering into the Settlement Agreement.  A party to a contractual claim may or may not have a bona fide defence but it is free to compromise such claim so as to end a legal dispute.  This is what happened in the present case.  If the Defendant is right, it really means that it will be meaningless to enter into any settlement agreement because after the ink on the settlement agreement is dried, one party can immediately sue on the original contract.  This cannot be right.  It will be a different matter if for whatever reasons the Settlement Agreement itself could be set aside.

14.  I agree that the Plaintiff’s claim was compromised in good faith and no vitiating factors are relied upon to set aside the Settlement Agreement. 

15.  In Binder v. Alachouzos [1972] 2 Q.B. 151 (CA), the English Court of Appeal held that a compromise of claims which had been made under illegal contracts may still be enforceable compromise if one were made bona fide. Roskill J made the following observations at 160B-E:-

“In my judgment it is the law of this country, as Lord Denning M.R. has said, where there is a bona fide compromise of an existing dispute and that compromise includes a compromise of what, as Mr. Joseph said, is basically an issue of fact, namely, whether or not there had in fact been unlawful moneylending, especially where the compromise has been reached under the advice of counsel and solicitors, that that compromise is enforceable against the party seeking subsequently to repudiate it. Any other course would cause very great difficulty in the administration of justice. One example will suffice: subject to the sanction of the court, a liquidator is entitled to compromise a dispute with debtors or supposed debtors of the company of which he is liquidator. What is he to do if he is met by the defence that the debt or supposed debt arose from unlawful money lending? Must he refuse to compromise? What is the court to do? Must the court refuse to sanction a compromise because it can always be reopened later? Is the court to investigate the whole matter, or can it look at the matter broadly and see whether or not a bona fide compromise should be arrived at or has been arrived at? In such a case it seems to me clear that the court should encourage and when appropriate enforce any bona fide compromise arrived at, especially one arrived at under legal advice.” (Emphasis added)

16.  The above legal reasoning and policy must be correct and makes perfect sense.

17.  In Chun Wo Construction & Engineering Co Ltd v China Win Engineering Ltd HCCT 37/2006 (unreported, 12 June 2008)  Lam J (as he then was)  said at §71(c):-

“… (c)  As between parties to the agreement leading to the stay, the court will be slow to allow litigation between them to be re-opened. This is particularly so when the stay is an integral part of the compromise.” (Emphasis added)

18.  Secondly, this Court proceeds on the basis that the Settlement Agreement is a new contract between the Plaintiff and the Defendant rather than an order of the court.  Mr Ng for the Defendant argued that the practice of the Court is not to enforce a potentially illegal agreement in a Tomlin Order.  However, there is no illegality in the Settlement Agreement.  Unless it is contended that it is illegal to settle a contractual claim which carries a potential illegality, it is hard to see any good reason to prevent parties from compromising a claim with an illegality defence.  There is no evidence that the Defendant were not aware of the illegality defence when it compromised the Plaintiff’s claim under the Loan Agreement.  That should really be the end of the analysis.

19.  Thirdly, the Defendant in substance contends that the Loan Agreement was made in potential violation of ss. 18, 22 and 27 of the MLO. However, it is established that the basis of the alleged potential violation is based on the fact that the Plaintiff is a money lender under the Loan Agreement.

20.  It is also established law that the lender of an “exempted loan” under Part II, Schedule I of the MLO must not be regarded as a money lender. (per Godfrey JA in Universe Link Industries Ltd & Another v. Liggars Ltd [1999] 2 HKLRD 393 (CA)  at p.386H-387C)

21.  Both before Master R. Lai and this Court, the Defendant accepts that the Loan is an exempted loan. I agree that should put an end to the Defendant’s illegality defence.

22.  I agree that the Loan is an exempted loan under §2 in Part II of Schedule 1 to MLO, being a loan to the Defendant (a company incorporated in Hong Kong)  secured by the First Legal Charge which has been registered under the Companies Ordinance (Cap. 622).

23.  I also agree that the fact that the Plaintiff had been a licensed money lender (or carrying on such business)  at the time when the Loan Agreement was made would have lent no support to the Defendant’s illegality defence.  In Liggars Ltd v. DC Finance (Holdings)  Ltd & Another [1998] 2 HKLRD 227 (CFI), Mr Recorder Ribeiro SC (as he then was)  held at 233E-G that:-

“… All of the words in that provision, including the words which exclude exempted persons and persons who make exempted loans, together constitute the definition of “money lender” for the purposes of the Ordinance.  In my view the words are unambiguous and clear.  Where any person makes a loan to a company secured by a mortgage, that person makes an exempted loan and is not to be regarded as a money lender as respects that loan.  It matters not whether that person is legally a money lender for the purposes of any other loan or is licensed as a money lender under the Ordinance or carries on business as such.” (Emphasis added).

24.  Fourthly, the Defendant submitted that it might be possible to incorporate the statutory terms, i.e. the provisions of MLO into the Loan Agreement.  It is not clear to this Court the basis for such incorporation given, in particular, the Loan is an exempted loan under the MLO.

25.  I agree with Mr Cheng for the Plaintiff that the exemptions under Schedule 1 of MLO was to protect the lender and it is inherently incomprehensible as to why the Plaintiff would voluntarily go under the ambit of the provisions of MLO which it could legitimately avoid.

26.  The Defendant relied on the decision of NRAM plc v McAdam [2016] Bus LR 232, but the English Court of Appeal refused to hold that the provisions in the Consumer Credit Act 1974 were incorporated into the loan agreement therein for (1)  the lack of clear and express wordings, and (2)  the parties’ inconsistent intention.

27.  Despite that the Consumer Credit Act 1974 was referred and/or mentioned in the loan agreement (§§8-9 on p.236B-237F), the English Court of Appeal nevertheless held that “there is no express incorporation of the 1974 Act” (§20 on p.245D; §22 on p.246C).  It went on to hold that for an incorporation to be found, if any, there must be “very clear words” (§18 on p.244G-H); and such incorporation must be consistent with the parties intention (§24 on p.246E).

28.  In the present case, there is no express term(s)  nor clear word(s)  incorporating the provisions of MLO into the Loan Agreement save and except that certain provisions of the MLO were merely attached to the Loan Agreement under Clause 8 therein.

29.  Further, I also agree that the case of Horace Yao Yee Cheong v Bradshaw [2014] 5 HKC 268 is distinguishable.  In that case, the Court was already satisfied that there were potential violation(s)  of MLO while here the best the Defendant could have put forward was a possible incorporation of some provisions from MLO into the Loan Agreement.  

30.  Fifthly, Mr Ng for the Defendant argued that once it is established that the Defendant’s illegality defence is arguable, it follows as a matter of logic that the consideration (i.e. forbearing to commence or continue an illegal claim)  provided for the Settlement Agreement would also be arguably illegal.  I disagree with this logic.  As I said earlier, parties are free to compromise a claim with a potential illegality defence.  The consideration for such compromise cannot be said to be illegal.  There is no basis for saying so.

31.  Finally, Mr Cheng for the Plaintiff submitted that despite the Defendant’s contention that the Tomlin Order was liable to be set aside, there is so far no application to set aside the same.  Had the Defendant’s appeal been allowed and the Summons been dismissed, the Plaintiff would be left no remedy since the action has now been stayed and enforcement been refused, while the Defendant could sit idly with the benefit of its inaction.  This may not be entirely accurate as the Court can always impose a condition that the Tomlin Order is to be set aside if it is persuaded by the Defendant.  There is no need to do so in this case.

D.  DISPOSITION

32.  For all reasons stated above, this Court dismissed the appeal.

33.  As far as costs is concerned, the Plaintiff seeks costs on an indemnity basis for the very fact that the Defendant has unreasonably brought about the present appeal despite its concession made before Master R. Lai, and coupled with its persistence and continuous refusal to comply with the Schedule to the Tomlin Order.

34.  I agree that the Defendant’s defence is unmeritorious but this by itself is not a ground for awarding a costs order on an indemnity basis. Accordingly, I also make an order that the Defendant is to pay the costs of and occasioned by this appeal and the costs before Master R. Lai to the Plaintiff, on a party to party basis, to be taxed if the parties cannot agree.

35.  This costs order nisi will be made absolute within 14 days from the date of this Reasons for Decision unless the parties take out an application to vary the same within the 14-days period.

36.  Finally, I thank Mr Cheng for the Plaintiff and Mr Ng for the Defendant for their helpful assistance.