PREMIER CAPITAL MANAGEMENT LTD v. SO WANG FUNG by SO WANG MING his guardian ad litem AND ANOTHER

HCA 2337/2015

[2024] HKCFI 849

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2337 OF 2015

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J U D G M E N T

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A. INTRODUCTION

1.  In this action, the Plaintiff (“Premier Capital”)  claims against the Defendants (“Mr So” and “Ms Ma”), inter alia, a sum of $2,917,500 (comprising $885,000 by way of principal and $2,032,500 interest as at 10^th April 2023).  The Defendants say that they are not liable by reason of the operation of various provisions of the Money Lenders Ordinance (Cap.163)  (“MLO”).

B.  THE BACKGROUND FACTS

2.  The following are not disputed and I find them as facts.  Some of the facts are taken from the witness statements of So Wang Ming (“Mr WM So”), the guardian ad litem for the Defendants, and of Mr So.  In respect of Mr WM So’s witness statements, I have borne in mind that on the one hand, they were not challenged at trial, but on the other hand, some of it consisted of hearsay evidence.  In assessing the weight to be placed on such evidence, I have had regard to the considerations set out in s.49 Evidence Ordinance (Cap.8), and also to the fact that some of Mr WM So’s evidence was based on information he pieced together after questioning Mr So and Ms Ma, who may have had difficulty in remembering events or expressing themselves.  I bear in mind that Mr WM So questioned Mr So about the events of November 2014 relatively closer in time to their happening than the date when Mr So came to make his witness statement, by which time Mr So may have had less recollection of the events.  Mr WM So also was able to review documents such as cheques and receipts to assist him in piecing together what had happened.  These matters would account for the fuller account in Mr WM So’s witness statements.

3.  Premier Capital was at all material times a registered money lender under the MLO.

B1.  The Defendants

4.  The Defendants are husband and wife.  There is no dispute, given the parties’ medical experts’ opinions and the confirmation of Mr Kenneth Lee (appearing with Mr Jack Hui), counsel for Premier Capital at the trial,[1] that at all material times:

4.1  Mr So suffered from Mild Grade Mental Retardation, making him vulnerable to the influence and exploitation of others, and mentally incapable of handling his finances, and that he did not have the required mental capacity to enter into the Loan Agreement (defined below); and

4.2  Ms Ma suffered from Mild Grade Intellectual Disability, making her vulnerable to the undue influence of others.

5.  Both of the Defendants have been certified by Dr Cheung Hung Kin as being mentally incapacitated persons as defined under Part II of the Mental Health Ordinance (Cap.136).

6.  Mr So holds a Registration Card for People with Disabilities issued by the Central Registry for Rehabilitation, certifying that he is medically handicapped.  According to Mr WM So, most people could easily tell from Mr So’s behaviour and speech that he is mentally handicapped as he behaves uniquely and slurs his words in daily life, so that he attracts others’ attention and is recognised as mentally handicapped.  Mr WM So also said that when talking to Ms Ma, one easily notices that she sometimes talks to herself and looks around unnaturally, so that it also easy to tell that she is mentally handicapped.

7.  Over the years, Mr So has been employed in a number of different jobs, including work as a cleaner.  In 2014, he was employed as a general service worker and his monthly salary was about $7,000 to $8,000.

8.  Mr So married Ms Ma in 2000.

9.  Ms Ma also holds a Registration Card for People with Disabilities issued by the Central Registry for Rehabilitation, certifying that she is medically handicapped.  In 2014, she was employed as a general service worker, earning about $7,000 to $8,000 per month.

10.  Mr So’s parents worried that Mr So might not be able to take care of himself after they passed away.  In 2001, therefore, they financed Mr So’s purchase of a residential property in his name (“the Property”)  so that he and Ms Ma would have a property to live in.

B2.  Mr CY Chan; Jone’s Consultant; Ms Chan

11.  In about 2014, Mr So got to know one Chan Cheong Yin (“Mr CY Chan”).  Mr So considered Mr CY Chan to be his good friend.  They played, went shopping, and had meals together, but it was always Mr So who paid the bills.  Mr CY Chan even registered for cable television services for his house under Ms Ma’s name, and asked Ms Ma to pay the bills.

12.  In around June 2014, Mr CY Chan told the Defendants that he could borrow money from finance companies for them, so as to improve their life and pay off their credit card and other debts.  The Defendants rejected his offers several times.  Mr So told Mr CY Chan that he did not need a lot of money to meet his living expenses.  However, Mr CY Chan continued to lobby the Defendants, and eventually they relented, because they did not want to lose him as a friend.

13.  The Defendants went with Mr CY Chan to the office of one Jone’s Consultant (HK)  Co (“Jone’s”), where he introduced them to a Ms Chan, an employee of Jone’s Consultant.  Mr CY Chan told Ms Chan that the Defendants wished to borrow money, and he told Mr So to do whatever Ms Chan asked of him.

B3.  The Loan Agreement

14.  On 10^th November 2014, Ms Chan and Mr CY Chan took the Defendants to a finance company in Yau Ma Tei, which was Premier Capital.  At the lobby of the building in which Premier Capital was located, they met a man who later turned out to be one Franky Lee, from Jone’s (“Mr Franky Lee”).  They all went to the office of Premier Capital, where they were taken to a room to meet Raymond Siu (“Mr Siu”), a manager of Premier Capital (“the Meeting”).  (In these proceedings, Premier Capital disclosed[2] a videotape of the Meeting.  Prior to the disclosure of the videotape, Mr WM So said that Mr So and Ms Ma had only mentioned that Ms Chan and Mr CY Chan were present on this occasion.  After the videotape was disclosed, Mr WM So played it to Mr So and Ms Ma, and they identified Ms Chan and Mr CY Chan.  They also recognised the other man in the room (now known to have been Mr Franky Lee)  as being as being someone they had met in the lobby of the building in which Premier Capital was located.  At the trial, a transcript of the videotape (“the Meeting Transcript”)  was referred to in the evidence.  One of the persons identified in the transcript was Mr Franky Lee (Mr Lee Pui Yu).)

15.  Mr Siu asked Mr So and Ms Ma to sign various documents. After that, Mr So and Ms Ma were taken to the office of Messrs KB Chau & Co (“KB Chau”)  by Ms Chan and Mr CY Chan, where they signed a loan agreement dated 10^th November 2014 (“the Loan Agreement”), under which Premier Capital was to lend $900,000 to the Defendants (“the Loan”).  Mr So saw the figure of $900,000 on the document and asked why there was such a large figure; Mr CY Chan and Ms Chan answered that there was no problem with the document and asked Mr So to sign it; Mr So told them that he did not understand the document but Mr CY Chan and Ms Chan did not explain it and just urged Mr So and Ms Ma to sign it; there was a female employee of KB Chau present but she did not explain the document either; Mr So eventually did sign the document although he was confused, because he was afraid that Mr CY Chan would get angry.

16.  Under the Loan Agreement, the rate of interest stated was 30%. Interest was to accrue on a monthly basis.  The Loan of $900,000 and interest were to be repaid by twelve monthly instalments.  The first eleven instalments were to be of interest of $22,500; the last instalment was to be for $922,500, being the principal and last instalment of interest.  The first instalment was to be payable on 10^th December 2014, and the last instalment on 9^th November 2015.

17.  Another of the documents which Mr So and Ms Ma were asked to sign was an Instruction and Confirmation Letter (“the Withholding Letter”), instructing KB Chau to withhold $180,000 for repayment of the first eight instalments under the Loan Agreement, and to issue a cheque each month to make repayment to Premier Capital.

B4.  The proceeds of the Loan

18.  $15,000 (comprising $6,000 “legal fees” and $9,000 “upfront fee”)  was deducted from the loan principal by Premier Capital.  It was never paid to the Defendants.

19.  The $180,000 which was retained by KB Chau was paid to Premier Capital via eight cheques, each for $22,500, from December 2014 to July 2015.  It was never paid to the Defendants.

20.  KB Chau issued two cheques, both dated 11th November 2014, with Mr So as payee.  The first was a cheque marked “Account Payee Only”, in the amount of $205,000.  The second was a cheque with “bearer” crossed out, in the amount of $500,000.

21.  On 11th November 2014, Mr So took the cheque for $205,000 to the Bank of China to deposit into his account.  He was accompanied by Ms Chan of Jone’s (as Ms Chan subsequently told Mr WM So).

21.1  The Bank of China used $120,000 of the proceeds to pay off Mr So’s credit card and other debts owed to the bank.

21.2  The remaining $85,000 was deposited into Mr So’s account on 12th November 2014.  On 13th November 2014, all of the $85,000 was withdrawn by Mr So and given to Mr CY Chan at the latter’s request.  Mr CY Chan never returned the money to Mr So.

22.  Mr So took the cheque for $500,000, which had been issued by DBS Bank (Hong Kong)  Limited, to a branch of DBS Bank.  He was accompanied by Ms Chan of Jone’s, and he handed over $500,000 in cash to Ms Chan, for her to assist in settling the credit card bills and other debts of Mr So and Ms Ma (as Ms Chan subsequently told Mr WM So).

23.  $166,583 was used by Jone’s Consultant to repay other credit card and other debts of Mr So and Ms Ma.  This was ascertained by Mr WM So, who went to speak to Ms Chan at Jone’s.  Ms Chan showed him a number of receipts in this regard.

24.  $333,417 was charged by Jone’s Consultant as administrative and intermediary fees.  Mr WM So ascertained this when he asked Ms Chan what happened to the balance of the loan proceeds after the $180,000 retained by KB Chau, $205,000 cheque paid in by Mr So at the Bank of China, and the $166,583 used by Jone’s to settle other debts of Mr So and Ms Ma (at the time when he asked Ms Chan, he was not aware that a further $15,000 had been charged by Premier Capital).  Ms Chan had told him that the balance had been used to pay Jone’s fees.  Mr WM So asked Ms Chan for a breakdown of these fees, but never received an answer.  The fees were never returned to Mr So.

25.  To summarise, the proceeds of the $900,000 Loan were used as follows.

Premier Capital’s fees deducted from the principal	$15,000
Amount withheld by KB Chau	$180,000
Cash given to Mr CY Chan	$85,000
Jone’s Consultant’s fees	$333,417
Payment of Mr So’s debts owed to the Bank of China	$120,000
Payment of Mr So’s and Ms Ma’s other debts	$166,583

C.  RELEVANT PROVISIONS OF THE MLO

26.  Section 2 MLO includes the following definitions:

“interest … includes any amount (by whatever name called)  in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan”

“principal …, In relation to alone, means the amount actually lent”.

27.  Section 2(3)  MLO provides that:

“For the purpose of determining the amount of principal of a loan, any amount thereof which is not shown to have been lent except for the purpose of treating it as an instalment paid by the borrower in repayment of the loan and which is so treated by the lender shall be disregarded.”

28.  Sections 24(1)  and (2)  MLO provide that:

“(1)  Any person (whether a money lender or not)  who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2)  No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).”

29.  Sections 25(1)  and 25(3)  MLO provide that:

“(1)  Subject to section 24(2), where –

(a)  proceedings are taken in any court by any person (whether a money lender or not)  for the recovery of any money lent … and

(b)  subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate,

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

…

(3)  any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate …”

30.  Sections 27(1), 27(3)  and 27(4)  MLO provide that:

“(1)  Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties)  incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

…

(3)  Subject to section 33A(5), it shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for on or 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.

(4)  If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount of value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the moneylender or a partner, employer, employee, principal or agent of the moneylender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly)  or may be recovered by the borrower from such person or from the money lender.”

D.  THE ISSUES

31.  A number of defences were pleaded on behalf of the Defendants.  Taking Mr So’s Defence, I note that, amongst other defences, it was pleaded that Mr So did not have the mental capacity to enter into the Loan Agreement, and that Premier Capital was aware of this at the time of the Meeting.  The parties obtained expert evidence to deal with this issue – both parties’ experts agreed that Mr So did not have the requisite mental capacity, but they had a difference of opinion as to whether this would have been apparent to a third party observer – the Defendants’ expert opined that it would have been discernible to a lay person if he had paid attention; Premier Capital’s expert opined that it “may” not have been obvious.  After the experts viewed the video, their respective opinions were reinforced.

32.  However, at the pre-trial review, counsel for the Defendants, Mr BK Ho indicated that he would not be running any of the defences based on Mr So’s (or Ms Ma’s)  mental incapacity and would only rely on defences under the MLO, in particular, the defence that the effective interest rate of the Loan exceeded 60% and that the Loan Agreement was therefore unenforceable.

33.  The parties agreed that the issues for my determination are as follows.

(1)  Whether the $180,000 paid by Premier Capital to KB Chau on 11th November 2014 and retained by KB Chau:

(1.1)  should be added to the interest of the Loan pursuant to s.2(1)  MLO; and/or

(1.2)  were costs, charges or expenses that may be set off from the Loan, or recoverable by the Defendants, under s.27(1)  MLO.

(2)  Whether the $15,000 charged by Premier Capital (comprising $6,000 legal fees and $9,000 up front fee)  were costs, charges or expenses that may be set off from the Loan, or recoverable by the Defendants, under s.27 MLO.

(3)  Whether the $85,000 and $333,417 of the principal sum received by the Defendants under the Loan Agreement were paid by the Defendants to certain individuals; and

(3.1)  if so, whether such individuals were acting in collusion with Premier Capital to obtain costs, charges or expenses from the Defendants contrary to s.27 MLO;

(3.2)  if so, whether the $85,000 and $333,417:

(3.2.1)   should be deducted from the principal and/or added to the interest of the Loan pursuant to s.2(1)  MLO; and/or

(3.2.2)   were costs, charges or expenses that may be set off from the Loan, or recoverable by the Defendants, under s.27 MLO.

(4)  Whether the effective interest rate of the Loan exceeds 60% and therefore is in contravention of s.24 MLO.

(5)  Whether or not the Loan Agreement was illegal and unenforceable against the Defendants pursuant to s.27 MLO.

(6)  Whether or not the Defendants are entitled to reopen the Loan transaction to be put back into the position they would have been in before they obtained the Loan from Premier Capital pursuant to s.25 MLO.

(7)  What relief should be given in the circumstances.

34.  Notwithstanding the parties’ arrangement of the issues above, it seems to me convenient to regroup the issues as follows:

34.1  those relating to whether various amounts should be deducted from the principal and added to the interest for the purposes of calculating the effective rate of interest under s.24 MLO (issues 1.1, 3.2.1 and 4);

34.2  that relating to the operation of s.25 (issue 6);

34.3  those relating to whether various amounts engage the operation of s.27 MLO (issues 1.2, 2, 3.1, 3.2.2, and 5);

34.4  that relating to relief (issue 7).

E.  THE EFFECTIVE RATE OF INTEREST UNDER S.24(1)  MLO

E1.  The $180,000 withheld by KB Chau

35.  Premier Capital now accepts that:

35.1  the fees of $15,000 it charged should not be included as part of the amounts “actually lent” by it, applying Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831 at [62], and that the amount should therefore be deducted from the principal of the Loan and added to the interest of the Loan for the purposes of the calculation of the effective interest rate under s.24(1)  MLO;

35.2  the amount of $180,000 withheld by KB Chau should not be included as “principal”, given s.2(3)  MLO, and also that the amount should be deducted from the principal of the Loan the purposes of the s.24 MLO calculation.

36.  In relation to the $180,000, the dispute between the parties is whether this amount should also be added to the interest of the Loan for the purposes of the s.24 MLO calculation.  Indeed, the primary contention of Mr Ho, was that once this amount was added to the interest of the Loan, the effective interest rate of the Loan would exceed 60% per annum, rendering the Loan Agreement unenforceable and therefore disposing of the entire claim.

37.  The competing calculations were as follows.

37.1  For the Defendants:

Principal	under Loan Agreement	900,000
	less fees	(15,000)
	less withheld “interest”	(180,000)
		705,000
Interest	under Loan Agreement	270,000
	add fees	15,000
	add withheld “interest”	180,000
		465,000
Effective interest rate	465,000 ÷ 705,000 x 100%	65.96%

37.2  For Premier Capital:

Principal	under Loan Agreement	900,000
	less fees	(15,000)
	less withheld “interest”	(180,000)
		705,000
Interest	under Loan Agreement	270,000
	add fees	15,000
		285,000
Effective interest rate	285,000 ÷ 705,000 x 100%	40.43%

38.  Mr Ho’s argument was that as $180,000 did not constitute principal under s.2(1)  MLO, it was therefore an amount in excess of the principal paid or payable in consideration of or otherwise in respect of a loan, and therefore constituted interest under s.2(1).  He further relied on Gain Wealth Global Credit & Investment Ltd and Skyline Credit Ltd v Leung Hing Chung [2022] 4 HKLRD 561, which were cases in which various amounts were deducted from the principal and added to the interest for the purpose of the s.24 calculation.

39.  Mr Lee submitted that to include the $180,000 would constitute double counting, as interest had already been included in the contractual interest.  He relied on Field Finance Ltd v Cheung Mo Ching [2023] HKCFI 3311 at [203] to [211], where DHCJ Tsui analysed a similar situation and came to the conclusion that to include the retained interest for the purpose of the s.24 calculation would amount to double counting.

40.  Leaving aside the authorities, as a matter of simple arithmetic, I agree that to add the $180,000 to the interest would amount to double counting.  It is common ground that the principal of the Loan as ascertained under s.2(1)  is $705,000.  The amount which the Defendants were to pay under the Loan Agreement in consideration of the Loan (aside from the $15,000 in fees)  was the contractual interest of $270,000,[3] albeit that $180,000 of this was (later)  paid from the amount withheld by KB Chau. The Defendants did not have to pay $180,000 on top of the $270,000.  Under the definition of “interest” in s.2(1), therefore, the amount to be paid in excess of the principal in consideration of the Loan was $270,000 (and the $15,000 in fees).

41.  The next question is whether Gain Wealth Global Credit & Investment Ltd and Skyline Credit Ltd suggest otherwise.

41.1  In Gain Wealth Global Credit & Investment Ltd, the payment in question was the lender’s upfront fee of $37,000.  There was no double counting as not only did it not go to borrower, but it was also not applied to discharge any legal obligation owed by the borrower to the lender.  See [62] to [63] (Kwan VP).  This may be contrasted with the present case, where the $180,000 was later applied to partially discharge the obligation to pay the contractual interest of $270,000.

41.2  In Skyline Credit Ltd, the payment in question was “three months’ interest for the loan”.  The amount was said to be $49,680, although numerically this did not tally with the terms of the loan agreement which provided for monthly interest of $41,400 (cf. [11] and [14(3)]).  As Mr Lee points out, the sum was treated together with the legal fees and handling fees, all of which never went to the borrower and were never used by him.  On the contrary, they were monies paid in consideration of or otherwise in respect of the loan.  On that basis, they were included as part of the interest.  See [46] to [47], [53], [55].  It does not appear that there was any argument in the Court of Appeal that the inclusion would amount to double counting (which is not surprising if the amounts were not in fact used to pay any of the interest).  As with Gain Wealth Global Credit & Investment Ltd, therefore, the present case is a different one.

42.  I am therefore of the view that the $180,000 retained by KB Chau should not be included in the calculation of the effective interest rate under s.24 MLO.

E2.  The $85,000 paid to Mr CY Chan and the $333,417 paid to Jone’s Consultant

43.  Mr Ho submitted that Mr CY Chan, Ms Chan and Mr Franky Lee were acting in collusion with Premier Capital to extract money from the Defendants, and that therefore, the $85,000 paid to Mr CY Chan and the $333,417 paid to Jone’s Consultant came within s.27(3)  MLO, and these amounts should also be deducted from the principal of the Loan for the purpose of calculating the effective interest rate under s.24 MLO.[4]

44.  I will deal with the issue of collusion further below.  In this section, I address the issue of whether, assuming collusion has been made out, this would affect the calculation of the effective interest rate under s.24 MLO.

45.  Mr Ho’s argument was that if the payments came within s.27(3)  MLO, then by reason of s.27(4), they could be recovered from the recipient, or set off against the amount actually lent, so that the principal would be reduced; and this reduced principal would then be used for the calculation of the effective interest rate under s.24.[5]

46.  However, as Mr Lee submitted, the Court of Appeal has held that the setting off relief under s.27(4)  MLO provides remedies to the borrower which are additional and alternative to the ones under (inter alia)  s.24. See Gain Wealth Global Credit & Investment Ltd at [54] and Skyline Credit Ltd at [51] to [52].  In both cases, the Court of Appeal held that s.27(4)  could not be used to expand the meaning of “interest” in s.2(1).  It seems to me that the same applies in respect of the meaning of “principal”. Section 27(4)  entitles a borrower to recover amounts paid in contravention of s.27 from the recipient, or, where the recipient is the money lender (or associated with the money lender in the specified ways)  to set off the amounts against the amount actually lent.

47.  Mr Ho also argued that Mr Franky Lee and Ms Chan of Jone’s procured the Loan on behalf of Premier Capital as its agent, so that the payment of $333,417 to Jone’s should also be taken into account in the calculation of the effective interest rate under s.24 MLO.[6] As Mr Lee submitted, the threshold for establishing agency is higher than that for collusion: Gain Wealth Global Credit & Investment Ltd at [48] to [49] (Kwan VP).  I set out further below the reasons why I do not consider that the claim of agency has been made out on the facts.  In the circumstances, the claim of agency does not affect the calculation of the effective interest rate.

E3.  Whether effective interest rate of Loan exceeds 60%

48.  The effective interest rate of the Loan is therefore 40.43% per annum.  It cannot be said that the Loan is unenforceable for breach of s.24 MLO.

F.  SECTION 25 MLO

49.  Mr Ho argued that in the event that I were to find that the effective interest rate did not exceed 60% per annum, but did exceed 48% per annum, then the Loan transaction would be extortionate under the presumption in s.25(3)  MLO.

50.  As I have found in section E above, the effective rate of interest of the Loan is 40.43% per annum, so that s.25(3)  does not apply.

51.  Mr Ho clarified in his oral closing submissions that he was not seeking to argue that the transaction was extortionate by reference to the other factors referred to in s.25.[7]

G.  SECTION 27 MLO

G1.  The meaning of “collusion” under s.27(3)  MLO

52.  In Gain Wealth Global Credit & Investment Ltd, Kwan VP, giving the judgment of the Court, said at [49]:

“…As rightly stated in Ever-Long Finance Ltd v Yeung Wah Lung at [90] to [93], “collusion” in the context of s.27(3)  and (4)  is a wider concept than “conspiracy”; there was no need to establish a prior agreement between the lender and the intermediary to extract payment from the borrower in a fraudulent way, it would be sufficient for the lender and the intermediary to co-operate with each other to do or abstain from doing something with a view to facilitate the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice…”

53.  This was reiterated in Skyline Credit Ltd at [33] where Chu JA (as she then was), giving the judgment of the Court, rejected an argument that there was no basis to adopt a wide interpretation of “collusion”.  Chu JA then went on to say:

“Further, this Court has held in K Cash Ltd v So Wang Fung [2021] 4 HKLRD 796, [20] that the meaning of collusion is simply that parties are playing the same game or acting in concert as held in HKSAR v Wong Kwok Wai, supra, [6] to [8] and [11].”

G2.  Whether collusion established on the facts

54.  At the trial, Mr Siu gave evidence on behalf of Premier Capital. Mr So gave evidence on behalf of the Defendants.  He was unable to read out the title of his witness statement save for his name and the word “的”. His witness statement was not challenged, although he was briefly cross examined along the lines that during the process of purchasing the Property, solicitors and bankers had not raised questions regarding his mental capacity.  Mr WM So also gave evidence on behalf of the Defendants.  He was not cross examined.

55.  The Defendants’ case is that Jone’s (and Mr Franky Lee and Ms Chan), Mr Chan and Premier Capital acted in collusion to obtain the payments of $333,417 (paid to Jone’s)  and $85,000 (paid to Mr Chan).

56.  I first deal with Jone’s, Mr Franky Lee and Ms Chan.  Ms Chan was an employee of Jone’s, as Mr WM So testified.  Mr Franky Lee was the Supervisor of the Mortgage & IVA Department of Jone’s, as Mr Siu knew.

57.  Mr Siu’s evidence about whether he knew Mr Franky Lee was self-inconsistent.

57.1  In his 2^nd Affirmation of 13th June 2016 (“Siu Affirmation”), made in support of Premier Capital’s application for summary judgment, he claimed he had “no idea as to who the Mr Chan is and to what Jone’s Consultant [Mr So] was referring.  There is no relationship at all between [Premier Capital] and this Jone’s Consultant…”.  He repeated this in his witness statement of 23^rd May 2017 (“Siu I”.)

57.2  However, Mr Siu made a further witness statement of 16^th September 2019 (“Siu II”)  in which he raised for the first time a claim that the Loan was made pursuant to a “turnaround loan plan” to assist in the obtaining of a mortgage (I return to this below); at the same time he said that he saw Mr Franky Lee’s business card amongst the loan documents relating to this case; he was introduced to Mr Franky Lee by an ex-colleague; Mr Franky Lee gave him his business card showing that he was the Supervisor of the Mortgage & IVA Department of Jone’s; afterwards, Mr Franky Lee introduced him to a client, namely, Mr So.  In other words, Mr Siu in fact knew Mr Franky Lee, knew that he worked for Jone’s, and knew that he was the one who had introduced Mr So as a client.

57.3  From the Meeting Transcript, it is apparent that Mr Siu knew Mr Franky Lee’s name without needing to be introduced.

57.4  When Mr Siu was asked why he claimed to have “no idea … what Jone’s Consultant” in the Siu Affidavit, when he clearly knew who Mr Franky Lee was and that he worked for Jone’s, he claimed that the Siu Affirmation had been made a long time ago.  However, when it was pointed out that the Affirmation had been made in 2016, relatively closer in time to the transaction than Siu II where he acknowledged knowing Mr Franky Lee, and that he would presumably have looked at the file and seen Mr Franky Lee’s business card before making the Affirmation, he could only answer that he did not remember.

58.  Mr Siu gave shifting evidence as to his understanding of Mr Franky Lee’s role, and in the end admitted that he knew Mr Franky Lee was facilitating the Loan transaction.

58.1  In the witness box, Mr Siu sought to distance himself from Mr Franky Lee.  He said that he could not remember how he met Mr Franky Lee, and that maybe Mr Franky Lee gave him a business card, but he, Mr Siu, was personally not aware what company Mr Franky Lee worked in, and indeed it never occurred to him as to what line of business he worked in.  He said that it never occurred to him that he was an intermediary or that Jone’s was an intermediary.  He claimed that Mr Franky Lee introduced Mr So to him “as a friend” rather than as an intermediary.  Yet Siu II had said that Mr Franky Lee had given him a business card stating his position and that afterwards, he had contacted Mr Siu and introduced him to a client – the implication clearly being that Mr Franky Lee had introduced Mr So in the course of his work rather than as a “friend”.

58.2  Mr Siu even sought to distance himself from the fact of the business card being in the file of the loan documents, saying that he did not know when it had been put in, and that he had just seen it in the file when making his witness statement. However, Premier Capital only had two staff, and Mr Siu was the handling person for the Loan transaction – it could only have been he who put the card into the file.

58.3  Mr Siu said that he thought that Jone’s perhaps helped clients to apply for a mortgage, similar to what Premier Capital did. Yet subsequently, he accepted that Mr Franky Lee could not have been in the same line of business as Premier Capital – otherwise, it would have taken Mr So as a client for itself, rather than refer him to Premier Capital.

58.4  The Meeting Transcript was telling.  When Mr Siu asked Mr So for his identity card and other documents, Mr So did not answer, and instead, Mr Franky Lee said that he would provide them later.  When asked about this, Mr Siu acknowledged that he knew from this that Mr Franky Lee played a role in facilitating the transaction. Towards the end of the Meeting Transcript, after all the documents had been signed, there was this exchange.

Mr Siu: “Law firm…Franky, do you know where the law firm is?”

Mr Franky Lee: “Do not know.”

Mr Siu: “OK, please wait a moment.”

  Mr Siu did not even bother to address the question to Mr So, who was supposed to be the client, in the first place; he directly asked Mr Franky Lee whether he knew where the law firm was (to which Mr So was then taken).  As Mr Siu accepted, this could only have been because he knew that Mr Franky Lee was facilitating the transaction, by arranging for the Defendants to go to the law firm.  And when Mr Franky Lee said that he did not know where the law firm was, Mr Siu’s response was not to check whether his client Mr So knew, but instead, to ask Mr Franky Lee to wait a moment.  After Mr Siu provided the address, Mr Franky Lee went on to ask “Directly at KB Chau?” – in other words, he knew that the law firm was KB Chau, even though Mr Siu had not mentioned the name of the firm during the Meeting.  From the video, it can be seen that this was not because Mr Franky Lee was shown any business card of the law firm.

58.5  This part of the Meeting Transcript should be contrasted with paragraph 19 of Siu II, where Mr Siu claimed that he had a “deeper impression” of the Meeting when Mr So and Ms Ma went to sign documents in his office

 “because they came with 3 “family members”.  This is rare because, according to my experience in finance companies and banks, as most customers would consider borrowing money as a disgrace, so they seldom attend with their family members.”

In fact, Mr Siu was well aware that one of these supposed “family members” was Mr Franky Lee, who was facilitating the Loan transaction; indeed, Mr Siu interacted with him as a facilitator and not as a “family member” of Mr So.

59.  Indeed, Mr Siu did not deny that he might have discussed the details of the Loan with Mr Franky Lee, that Mr Franky Lee might have provided him with documents relating to the Loan, and that he might not actually have spoken to Mr So before the Meeting.

60.  Mr Siu’s claim not to have known that Jone’s charged Mr So a fee was not credible.

60.1  It should first of all be borne in mind that Mr Siu was not a naïve newcomer to the money lending industry.  At the time of the Loan transaction, Mr Siu had been in the industry for some eighteen years, mostly dealing with the approval of loan applications, and had worked for different companies in the industry.  He acknowledged that he knew that some companies and intermediaries charged a fee.

60.2  His claim that it did not occur to him that Mr Franky Lee might have been working for an intermediary company is not a credible one.  After all, “intermediary” is not a term of art, and simply means “middleman” – and on Mr Siu’s own evidence, Mr Franky Lee was acting as a middleman, introducing Mr So to him as a client.  The Meeting Transcript further showed that Mr Siu was well aware that Mr Franky Lee was facilitating the transaction.

60.3  Mr Siu’s claim not to have been aware that Mr Franky Lee was an intermediary was presumably to tie in with his claim that he did not know that Mr Lee would charge for his services. When asked why, if Mr Franky Lee worked for free, he would have introduced clients to Mr Siu, Mr Siu mentioned two matters: that he obtained clients from referrals (for free)  and he in return would refer clients back (for free); and that if Mr Franky Lee had told Mr Siu that he would need a fee from the client, Mr Siu would have rejected the case, because this would have been a burden for the client and would have affected the risk of the Loan.  He further explained in re-examination that if a client had to pay a large fee to an intermediary and if he had other expenses, this would affect the client’s repayment ability.

60.4  However, on the first of these two points, Mr Siu said that he could not return the favour of a referral to Mr Franky Lee because the latter had not told him what sort of client he wanted; when asked why he did not ask Mr Franky Lee, he could only say that he just hadn’t asked.  This undermines his claim that he found clients through mutual, friendly and fee-less referrals – how could he have returned the favour of any business to Mr Franky Lee if he did not even bother to find out what sort of client Mr Franky Lee wanted, and even after Mr Franky Lee had referred a client to him? In re-examination, Mr Siu was reminded that Mr Franky Lee’s business card referred to a mortgage department and an IVA department, so that he would have known that one line of Mr Franky Lee’s business was to do with mortgages.  This actually highlighted the conflict with Mr Siu’s answer in cross-examination that he did not have a chance to refer business to Mr Franky Lee because he did not know what type of business his company did.

60.5  As to the second point, Mr Siu said that it never occurred to him to ask Mr Lee what he charged for his services, and indeed that he was not interested in finding out.  This undermines his claim that he was concerned about the impact of an intermediary fee on the client’s ability to repay his loan, and the associated risk – if he did not bother to find out whether Mr Franky Lee was charging Mr So, and how much such a charge might be, how could he begin to assess Mr So’s repayment ability, and the risk associated with making the Loan?

61.  Mr Siu’s evidence as to how Premier Capital came to lend $900,000 to the Defendants was not credible.

61.1  Mr Siu’s evidence was that his practice was to talk to his clients to find out their needs, that he would think about what loan plan suited the needs of the client, and that in considering whether to approve a loan he would take into account the client’s income, ability to repay, the burdens on the client such as whether there was an intermediary fee and other expenses.

61.2  In the present case, he acknowledged that the amount of $205,000 to be lent (for which a cheque marked “Account Payee Only” was later to be drawn)  was, as far as he (Mr Siu)  was concerned, needed to pay Mr So’s credit card and other debts.  Yet when Mr Siu was asked why Premier Capital proceeded to lend $900,000 to Mr So, he could not answer.  He said that maybe Mr So needed cash, and that maybe at the time when he went to discuss it with Mr Siu he had requested cash. However, Mr Siu had not identified any previous occasion when Mr So went to discuss the Loan with him; earlier on, Mr Siu had claimed not to remember the details of any discussions about the Loan so that he could only say that his general practice was to contact applicants to discuss their loan applications, including asking them what they needed a loan for.

61.3  When it was further put to him that at most, Mr So needed $205,000 to clear his debts and a further $180,000 for the eight prepaid interest instalments required by Premier Capital, so that a loan of $400,000 would have sufficed, Mr Siu then answered that this was not enough, because “maybe” Ms Ma’s debts also had to be cleared. When asked whether he had asked Ms Ma how much she owed, Mr Siu said that she had provided a Trans Union credit report, although he could not recall the figure owed by Ms Ma.  It was then put to Mr Siu that in fact, only some $166,000[8] of the Loan was used to discharge both Defendants’ debts, and that if a lesser amount (than $900,000)  had been lent, the eight prepaid interest instalments required by Premier Capital would have been of a lower amount, so that a loan of $400,000 in total would have met Mr So’s needs.  Mr Siu said that a loan of $900,000 was not his own decision and was “perhaps” a request made by Mr So.  When pursued further, Mr Siu was unable to explain why a loan of $900,000 was granted, save to say that before the agreement was made, the clients “came up” to discuss with him first.  However, when pressed as to how he recalled this and whether it was merely an answer based on what his general practice was, Mr Siu answered that he was talking about his general practice.

61.4  In other words, Mr Siu was not able to how the figure of $900,000 had been arrived at in the present case.  And if it were the case that Mr Siu had followed his avowed usual practice, he should have talked to Mr So to understand his needs,[9] thereby ascertaining that some $166,000 was needed to clear his and Ms Ma’s debts, then there is no explanation why he thought it appropriate to lend $900,000, even allowing for the making of eight prepaid interest payments.

61.5  It was only in re-examination, when asked whether all the indebtedness of a person would necessarily be included in his Trans Union credit report, that Mr Siu answered that it might not be; and when asked whether it was possible that when he considered the making of the Loan, the indebtedness was more than that stated in the report, that Mr Siu answered yes. However, it remains the case that Mr Siu could not say that there was actually any such other indebtedness raised by Mr So, or considered by Mr Siu, which could go towards explaining why a loan of $900,000 was made.  Nor was any contemporaneous documentation from Premier Capital’s files produced to suggest that any such indebtedness was drawn to Mr Siu’s attention or taken into account by him in approving the Loan.  Furthermore, in paragraph 56 of Siu I, Mr Siu had expressly stated that Premier Capital had no knowledge, whether actual or constructive, of whether the Defendants had to borrow $705,000 (the total of the two cheques for $205,000 and $500,000)  to pay his debts.

61.6  Siu II had claimed that Premier Capital had offered a “turnaround loan” to clients who owned a property under the Government’s Home Ownership Scheme, helping them to obtain a mortgage loan by (a)  paying off their existing overdue debts and (b)  creating a good credit record through the regular repayment of interest instalments from loan proceeds withheld by the solicitors.  It was claimed that some clients would increase the amount of the loan for this purpose.  Yet Mr Siu was unable to say that this was actually the reason for fixing the amount of the loan as $900,000 in the present case.

61.7  Mr Siu was further asked in re-examination whether, even assuming the Defendants only owed some $260,000, it would have surprised him if the Defendants had asked for $500,000, $600,000 or even $700,000 by way of a loan.  Mr Siu answered no, because the clients might have had some monetary matters to deal with, and that when he communicated with a client he would have asked what the purpose of the loan was, and that after consideration Premier Capital accepted the reasons then the loan application would have been accepted; however, he could not say what he actually discussed in the present case. The position therefore remained that no concrete reason for advancing a loan of $900,000 could be provided by Mr Siu, despite his claim that it was his general practice on the one hand to check what his client’s needs were, to help the client meet such needs, and on the other hand to consider the risk to Premier Capital and the client’s repayment ability.

61.8  In answer to questions from the court, Mr Siu agreed that that if the Defendants had asked to borrow an amount such as $500,000, $600,000 or $700,000 which was so much more than their apparent indebtedness, he would have wanted to know why this was the case, and he would have asked what the purpose of the loan was, whether the Defendants could afford repayment, and whether they had undisclosed debts; and he would have been aware that the Defendants’ monthly income was insufficient to cover any monthly interest instalments of $22,500 on which they defaulted.  Mr Siu was unable to say that he actually made any queries about such matters, or to explain why it was considered appropriate to make the loan on the basis of the known information.  Instead, he launched into a lengthy answer claiming that the present case was a “turnaround loan”, and said that the Defendants would be able to pay the interest instalments with the help of such a loan.  However, he then acknowledged that he did not have any recollection of how the Loan came to be approved or what was discussed, so that his explanation that Premier Capital came to grant the Loan based on the supposed calculations of what the Housing Department would charge by way of interest was not based on memory; rather, it was speculation.  When re-examined, Mr Siu claimed that he was sure that the Loan was a “turnaround loan plan” because eight prepaid interest payments had been made and the Property was a Home Ownership Scheme property.  However, it was clear from his answer that he was at most speculating that this the case.  In any event, he still could not explain how the Loan principal was agreed.

61.9  It is also notable that the claim that the Loan was a “turnaround loan plan” was only made in Siu II of 16^th September 2019 (although Premier Capital would have been aware by the time of the Siu Affidavit in June 2016 and Siu I of May 2017 that the Defendants were saying that they had been tricked by Premier Capital and Jone’s), and whilst speculative details as to how, in theory, a loan secured by a mortgage of the Property might have operated were set out in Siu II, there was no suggestion that the Defendants had ever intimated to Mr Siu that they were seeking such a loan or mortgage.  Even in his oral evidence, Mr Siu did not suggest this.  Nor was it suggested to either Mr So or Mr WM So that Mr So was seeking to obtain a loan secured by a mortgage of the Property, whether with the benefit of the Loan or otherwise.

62.  Mr Siu could hardly give any evidence as to the details of what actually happened in the present case.

62.1  In answer to many questions, Mr Siu often talked about what his general practice would have been, rather than what actually happened in this case.  For example, when he was asked what he found out about the background of the Defendants’ income, he answered that his usual practice was to call up the client to ask him for his income proof.

62.2  The other typical response was that he could not recall what had happened.  For example, he could not remember how he met Mr Franky Lee, who sent the Defendants’ documents to him, or whether he discussed details of what the purpose of the loan was.

63.  I bear in mind that the events took place a long time ago, and that Mr Siu would have dealt with many loans, so that a claim not to remember the details of the Loan is not, in itself, inherently incredible.  This does, however, mean that one should scrutinise with care his claim to have remembered certain details.  For example, he claimed to have had a “deeper” impression that Mr So went to the Meeting with three persons who were family members (in Siu II, which did not refer to the fact that the Meeting had been videotaped[10] or the Meeting Transcript)  – when in fact he never asked the identities of the persons who went to the Meeting, and when in fact he was well aware that one of the three persons was Mr Franky Lee.

64.  Morever, in Siu II paragraph 20, Mr Siu condescended into great detail about the Meeting, stating that the persons at the Meeting were Mr Franky Lee,[11] an old man around 60 to 70 years old, a woman about 30 to 40 years old; that he asked Mr So who the three persons were; that Mr So answered that they were his family members; that he asked Mr So and Ms Ma to produce their identity cards and original income proof; that he confirmed all the documents were originals and then passed them to his colleague for photocopying; that he explained seven specific documents one by one to Mr So and his wife; that he confirmed with them that they understood the documents; that he arranged for them to sign all the documents for confirmation; that he passed copies of all the signed documents to Mr So; and that Mr So and Ms Ma then left and went to KB Chau to sign the Loan Agreements and collect the cheques.  This witness statement was supposedly prepared at a time when Mr Siu had not watched the video of the Meeting.[12]  Yet Mr Siu was supposedly able to give such a detailed account of the Meeting in a statement of September 2019, which was already years after the Meeting in November 2014.

65.  Given the above, I do not find Mr Siu to be a credible or reliable witness.  Contrary to his avowed ignorance of Jone’s and Mr Franky Lee, he in fact knew Mr Franky Lee and that he was facilitating the Loan transaction, providing documents to Premier Credit, accompanying Mr So to Premier Credit and then arranging for him to go to KB Chau.  I do not place any credence on Mr Siu’s denial that the purpose of arranging for part of the Loan to be disbursed by way of the $500,000 cheque was to accommodate the making of payments to third parties such as Mr Franky Lee.  (The Meeting Transcript records Mr Siu telling Mr So that the law firm had called him (Mr Siu, not Mr So)  to say that it could issue a cash cheque for up to $600,000, that the balance would be by way of a bank cheque, that he would be told how to handle the cheques when he got to the law firm, and that $180,000 would be deducted as prepayments of interest.)

66.  I therefore find that Jone’s and its employee Mr Franky Lee were acting in collusion with Premier Capital within the meaning of s.27 MLO.  They were cooperating with each other with a view to facilitating the conclusion of the Loan transaction, against the interest of the Defendants, who, as Mr Siu knew on the basis of the information available to him, had no need for a loan as large as $900,000, no ability to make monthly interest repayments of $22,500 (let alone the principal), and no known intention to obtain a mortgage in order to fund such repayments. They were playing the same game.

67.  I do not, however, go further to find that Jone’s was Premier Capital’s agent in the legal sense, as it does not seem to me that there was evidence that the payments made to Jone’s were sought, or received, on behalf of Premier Capital.  See Gain Wealth Global Credit & Investment Ltd at [48] to [49] (Kwan VP).

68.  As for Mr Chan, whilst Mr Siu’s evidence that he thought Mr So (and Ms Ma)  went to the Meeting with three family members is not credible, Mr Ho did not cross examine Mr Siu as to his links with Mr Chan or knowledge of Mr Chan’s role.

G3.  The operation of s.27(4)  in relation to payments made to third parties

69.  Jone’s received $333,417 in contravention of s.27(3)  MLO. Pursuant to s.27(4), the amount should be set off against the amount actually lent, and the amount should be reduced accordingly.  This will in turn affect the amount due by way of interest under the Loan.

G4.  Costs, charges or expenses paid to Premier Capital under s.27(1)  MLO; the operation of s.27(4)  in relation thereto

G4.1  Preliminary observation - $180,000 should be deducted from principal by virtue of concession

70.  Whilst issue 1.2 asks whether the $180,000 were costs, charges or expenses that should be set off from the Loan under s.27(1)  MLO, it seems to me that even leaving aside s.27(1), the $180,000 should be deducted from the principal of the Loan (and therefore set off from the Loan), simply by virtue of Premier Capital’s concession that the $180,000 should be deducted from the principal of the Loan by virtue of s.2(3)  MLO. Whilst I have earlier referred to this concession in the context of the calculation of the effective interest rate under s.24(1)  MLO, the concession was a general one under issue 1 and not limited to the calculation under s.24(1)  MLO.[13]

G4.2  Application of s.27(1)  MLO

71.  In any event, the same result in relation to the $180,000 is reached by the application of s.27(1)  MLO.

72.  It will be recalled that the $180,000 was withheld by KB Chau, supposedly as prepayments of interest to Premier Capital.  The face of the Withholding Letter, which was a pre-printed standard form with various blanks filled in, contained a “declaration” that the instruction to withhold the $180,000 was made at the request of the borrower and had no direct or indirect link to KB Chau or Premier Capital.  However, Mr Siu confirmed in cross-examination that the arrangement to prepay the eight instalments was one agreed between the Defendants and Premier Capital albeit not written into the Loan Agreement, and that the Loan would not have been approved had the Defendants not been willing to make the prepayment.  In other words, it was not a voluntary request at all. In the Meeting Transcript, Mr Siu is recorded as having told Mr So that $180,000 would be deducted from the Loan proceeds, to be withheld, and the lawyer would pay Premier Capital on the Defendants’ behalf.  In any event, I have no doubt that Mr So was simply incapable of making any voluntary request as suggested on the face of the Withholding Letter, given the common ground that Mr So did not have the mental capacity to enter into the Loan Agreement.

73.  Mr Lee’s submission was that s.27 MLO did not apply to this amount as the retained interest was for the purpose of repaying contractual interest, and had nothing to do with “costs, charges or expenses”, or “remuneration or reward” obtained in connection with the negotiation of a loan.[14]

74.  However, s.27(1)  MLO provides that (emphasis added):

“Any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties)  incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

75.  It seems to me that the $180,000, which was never paid to the Defendants, constituted “costs, charges or expenses” which were “incidental to or relating to … the granting of the loan … or the guaranteeing or securing of the repayment thereof”.  It is not correct to say that the amount was used and enjoyed by the Defendants for the purpose of repaying contractual interest.  The fact is that the Defendants never received the $180,000, which was withheld by KB Chau right from the drawdown of the Loan, even though none of the interest payments had either accrued or fallen due for payment at that time.  The Defendants effectively paid the $180,000 upfront, which was not in discharge of any contractual obligation under the Loan Agreement, but pursuant to a separate arrangement imposed by Premier Capital on the Defendants.  The fact that the amount of $180,000 was subsequently used to pay interest amounts under the Loan Agreement does not change the nature of the $180,000 at the time it was withheld.

76.  Insofar as it was argued that the $180,000 was used for the benefit of the Defendants in creating a good credit record for the purposes of applying for a loan secured by a mortgage on the Property, I have already noted above that there was simply no evidence that the Defendants were seeking to obtain such a loan or that they had told Mr Siu that this was what they wanted to do.

77.  For completeness, I note that it was not suggested that the fact that the $180,000 was held by KB Chau rather than by Premier Capital made any difference to the application of s.27(1)  MLO.  I consider that is correct.  The focus of s.27(1)  MLO is on whether there is any payment by the borrower of costs, charges or expenses.  Whether Premier Capital required the payment to be made to it, or to KB Chau to be held for onward payments to it, does not affect the fact that from the point of view of the Defendants, the $180,000 was paid by them right from the start (and that it was to be paid to Premier Capital albeit via the conduit of KB Chau).  The Defendants never enjoyed the use of the $180,000 as loan principal.  The amount should be set off under s.27(4)  MLO, not being an amount truly lent to the Defendants.

78.  Incidentally, I would further note that on Premier Capital’s case, the $180,000 constitutes part of the Loan principal on which interest accrues, so that the effect of Premier Capital’s case regarding the $180,000 in substance is that the $180,000 was lent to the Defendants, who were obliged to pay interest at 30% per annum on this amount, although they never received it and it was paid out at the time of the drawdown of the Loan at Premier Capital’s direction, standing as security for the Defendants’ future obligations to pay interest.

79.  Premier Capital also received $15,000 in fees.  Mr Lee’s submission was that s.27 MLO did not apply to this amount as the amount was never paid by the Defendants, and the sum does not have to be set off from the Loan as it is no longer being claimed.[15]  The effect of this submission is that the principal of the Loan should be reduced by $15,000. It seems to me that the same result would be reached by virtue of s.27(4)  (in other words, it is not the case that s.27 does not apply).

80.  The amounts of $180,000 and $15,000 should therefore be set off against the amount actually lent, and the amount should be reduced accordingly, pursuant to s.27(4).  As with the setting off of the $333,417, this will in turn affect the amount due by way of interest under the Loan.

G5.  Whether the Loan Agreement illegal and unenforceable pursuant to s.27 MLO

81.  The fact that there were charges or payments which contravened s.27 MLO and are illegal by virtue of the section does not in itself make the Loan unenforceable.  The mere fact that a transaction is illegal does not necessarily mean that it is unenforceable.  In the case of payments which contravene s.27 MLO, s.27(4)  MLO expressly provides for the applicable remedies – the illegal payments may be set off against the amount actually lent or may be recovered by the borrower.  In other words, whilst the loan is unenforceable to the extent provided for by s.27(4), it is at the same time otherwise enforceable.  See K Cash Ltd v So Wang Fung [2021] 4 HKLRD 796 at [27], [30] (Cheung JA).

H.  DELAY; INTEREST PERIOD

82.  Premier Capital initiated proceedings in October 2015.  The trial did not commence until 26^th February 2024.  On any view, that is an extremely long lapse of time.  At the pre-trial review, I ordered that Premier Capital should explain the length of time taken to bring this matter to trial. As a result, Premier Capital’s solicitors (“Fongs”)  filed a letter of 7^th December 2023, and the Defendants’ solicitors (“LC”)  filed a letter of 21^st December 2023.  I make reference in this section to matters set out in those letters, and matters appearing from the court’s file.

83.  There is no dispute as to the relevant principles, which I summarise as follows.

83.1  The court has a discretion to disallow interest for a period or to reduce the rate of interest awarded if a plaintiff is guilty of unreasonable delay in either commencing or prosecuting proceedings.

83.2  It is wrong that interest should run during a period of unjustifiable delay, as the plaintiff will have been kept out of the sum awarded to him through his own fault.  The fact that the defendant will have had the use of the sum during that time does not excuse the plaintiff’s fault.

83.3  In exercising its discretion, the court must take a realistic view of delay.  In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else.  Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.  The delay must truly be exceptional and inexcusable, having made allowance of the fact that delays and lulls do occur in litigation; an example would be where an action has inexcusably been allowed to go to sleep for years.

83.4  When determining what period of disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay.

83.5  A broad-brush approach should be taken in assessing the period of delay.

See Lo Yuk Sui v Fubon Bank (Hong Kong)  Ltd [2017] 2 HKLRD 477 at [39], [44], [47] (Peter Ng J); Challinor v Juliet Bellis & Co [2013] EWHC 620 (Ch)  at [48].

84.  Mr Lee submitted that:

84.1  there was no delay after Premier Capital’s current solicitors took over the conduct of the action on 19^th June 2019;

84.2  as to the period prior to 19^th June 2019, even if there was delay on the part of Premier Capital’s former solicitors Messrs HY Leung & Co (“HYL”), this could not have had any adverse impact on the progress of the case given the belated participation of Ms Ma in the proceedings;

84.3  the Defendants themselves contributed to unnecessary delay in the proceedings by amending their pleadings.

85.  The following matters are relevant to the assessment of whether there has been unreasonable, exceptional and inexcusable delay, and the length of such delay.

86.  LC has pointed out that HYL delayed in giving discovery.  In this regard, I note the following, by way of background.

86.1  Under paragraph 5 of Practice Direction 5.2, the parties should proceed with discovery without the need to wait for an order of the court.

86.2  Mr So filed his Defence on 12th July 2016.  Premier Capital did not file any Reply.  Discovery could and should have taken place shortly thereafter.

86.3  By order of Master J Wong on 14^th February 2017, leave was granted to Mr So to file and serve his Amended Defence on or before 21^st February 2017, and to Premier Capital to file and serve its Reply within 28 days thereafter; the parties were then to serve a list of documents within 28 days thereafter and the parties were to exchange their respective witness statements within 84 days thereafter.

86.4  Mr So filed his Amended Defence on 20th February 2017 and his List of Documents on 20th April 2017.  The parties exchanged witness statements on 23^rd May 2017.  However, and despite LC’s queries, Premier Capital did not file any list of documents.  Eventually, Premier Capital filed a consent summons on 24^th November 2017 for an extension of time to file its list of documents, and this was not done until 4^th December 2017, which was about eight months after the original deadline fell due in April 2017.

86.5  Yet this list of documents only consisted of three documents: the Loan Agreement, and the two cheques of 11th November 2014.

86.6  The lack of discovery was particularly significant in the present case because of the Defendants’ mental handicap.

86.6.1  Premier Capital had sought to apply for summary judgment of their claim.  In Mr Siu’s affirmation of 25^th April 2016, Premier Capital had disclosed that eight payments of interest of $22,500 had been made at monthly intervals from December 2014 to July 2015, totaling $180,000.

86.6.2  In opposition to the application for summary judgment, Mr WM So filed an affirmation of 18^th May 2016 referring to this piece of information, expressing puzzlement at this as Mr So’s income would not have been sufficient to make these repayments; he also said that Mr So could not explain how the repayments had been made. 

86.6.3  In the reply affirmation of 17^th June 2016 (which is in fact the Siu Affirmation referred to above), instead of disclosing any information as to how the $180,000 had been repaid, including Premier Capital’s requirement that $180,000 be withheld from the Loan principal, and the fact of the Withholding Letter, Mr Siu said that Premier Capital had decided to reduce the amount claimed against the Defendants by $195,000 “being fees, costs and expenses which have partly been repaid and settled and part of which [Premier Capital] verily believes may offend some section(s)  of the [MLO]”.  Of course, it was subsequently to transpire that this amount consisted of the $15,000 fees charged by Premier Capital and the withheld sum of $180,000.  However, rather than disclosing any information or documents relating to these amounts, Premier Capital instead took the stance that it would withdraw its claim for this part. In paragraph 13 of the affirmation, Mr Siu said “Accordingly, [Premier Capital] sees no reason to provide any further details in relation to such deducted sum as it no longer forms part of the plaintiff’s claim and as such bears no relevance to the present case.” Premier Capital persisted with this stance in Siu I of 23^rd May 2017.  In the meantime, disclosure continued to be withheld.

86.6.4  The Withholding Letter was still not disclosed in Premier Capital’s List of Documents of 4^th December 2017.  It was provided at some point prior to Mr WM So’s Supplemental Witness Statement of 14^th February 2019 (“WM So II”))  so that he was able to address it there.  It was only formally disclosed in Premier Capital’s Supplemental List of Documents of 15^th October 2019.  It is relevant to note that LC had repeatedly asked Premier Capital for documents referred to in Premier Capital’s affirmations used in the summary judgment application in December 2017 and January 2018 (which would have included the Withholding Letter)  but the response received was that HYL were taking instructions.

86.6.5  Even then, the video tape of the Meeting was not disclosed.  This was not done until Premier Capital’s Second Supplemental List of Documents of 2^nd December 2019 (without any transcription).  Mr WM So had to file his Second Supplemental Witness Statement of 23^rd August 2021 (“WM So III”)  to address it (and other matters), and then Premier Capital filed Siu III on 13th April 2022, principally addressing the video.  The parties’ experts had to file a supplemental report solely for the purpose of addressing the video on 7^th April 2021.  Mr Lee also acknowledges that the late disclosure caused the Defendants to apply for an amendment of their pleadings.

86.7  It is not the case that the late discovery of the Withholding Letter caused the proceedings to come to a standstill, although some delay was caused in that Mr WM So had to file an additional witness statement and there had to be an amendment of pleadings.  Nevertheless, the Defendants were still able to prepare witness statements and proceed with instructing their expert witnesses, and the parties’ listing questionnaires of May and June 2018 had indicated readiness for trial.  The video tape is another matter, however, and I return to this below.

87.  LC also says that Premier Capital delayed in exchanging its supplemental witness statements.  Its account of events, not disputed by Premier Capital, is as follows.

87.1  By letter of 14^th February 2019, it had proposed to HYL the date of 15^th February 2019 for exchange, following on from the order of Master Hui of 26^th October 2018.

87.2  HYL replied by letter of 15^th February 2019, saying that they were unable to obtain Premier Capital’s instructions and could only exchange witness statements by the end of February 2019 at the earliest, which would be after the deadline of 15^th February 2019 imposed by the order of Master Hui.

87.3  Notwithstanding LC’s request by letter of 18^th February 2019 for Premier Capital to apply for an extension of time for the exchange of witness statements, Premier Capital failed to do so, and indeed did not reply to LC.

87.4  HYL only notified LC by letter of 4^th April 2019 that Premier Capital was not prepared to exchange witness statements at that stage, by which time the deadline for exchange had lapsed for about two months.

87.5  Subsequently, in the course of dealing with the Defendants’ application for amendment of pleadings, Master J Wong on 11th April 2019 ordered that the deadline for the parties to exchange their witness statements should be extended to 42 days after the making of amendments.  Pursuant to this order, the parties should have exchanged their witness statements on 21^st June 2019.

87.6  On 21^st June 2019, LC received a Notice of Change of Solicitors, which had been filed by Premier Capital on 19^th June 2019.  On 24^th June 2019, LC wrote to ask Fongs, the new solicitors, whether or not there would be an exchange of witness statements.

87.7  On 16^th July 2019, Fongs said that they were unable to obtain a full set of documents from HYL, and therefore unable to advise Premier Capital, and unable to confirm whether or not there would be an exchange of witness statements.

87.8  At the fourth case management summons hearing on 22^nd July 2019, Master Hui ordered that unless Premier Capital exchanged witness statements by 4pm on 16^th September 2019, it would be debarred from calling factual witnesses at trial.

87.9  The parties finally exchanged supplemental witness statements (Siu II from Premier Capital, and WM So II dated 14^th February 2019 for the Defendants)  on 16^th September 2019.  This was seven months after the original deadline of 15^th February 2019 for exchange of supplemental witness statements which had been set as long ago as 26^th October 2018.

88.  In Fongs’ letter of 7^th December 2023 to the court, it was said that there were two matters which required immediate attention after Fongs took over conduct of the action on 19^th June 2019.  One of these was that “additional depositions had to be made and additional exhibits had to be disclosed by [Premier Capital], in particular relating to the [turnaround loan plan]”.  It will be recalled that Siu II raised for the first time that the Loan was made pursuant to a “turnaround loan plan”, and indeed this was the main subject of the witness statement.  However, as LC has pointed out, there is no reason why, if this was thought to be relevant and important, it was raised for the first time only some four years after the commencement of the proceedings, and more than a year after the parties had originally agreed that the action was ready to be set down in May and June 2018.

89.  The other matter that Fongs said required their immediate attention upon their taking over conduct of the action in June 2019 was that a joint psychiatric report had been prepared only in respect of Mr So but not Ms Ma.  LC has pointed out that the original joint psychiatric examination of Mr So in September 2018 did not extend to an examination of Ms Ma as legal aid had not yet been granted for her at the time.  Legal aid was granted in October 2018, and Ms Ma filed her Defence on 26^th November 2018.  Premier Capital did not file any Reply within time (and indeed not until years later on 13th April 2022).  Whilst of course there is an implied joinder of issue even in the absence of a Reply, no positive case was put forward to dispute Ms Ma’s pleaded case that (inter alia)  she suffered from mental incapacity, that she had been examined by a psychiatric specialist on 10^th September 2018 who found that she suffered from mild grade mental handicap and was vulnerable to exploitation by others, that Premier Capital knew or ought to have known of this at the time of signing the Loan Agreement, and that it would have been obvious to Premier Capital that Ms Ma signed documents at the Meeting under the undue influence of Mr Chan, Ms Chan and Mr Franky Lee.  Furthermore:

89.1  Mr So’s Defence had pleaded from the start that Ms Ma was also mentally handicapped, which was only the subject of general traverses rather than any positive plea in Premier Capital’s Reply to Mr So’s Defence.

89.2  Mr WM So’s witness statement of 26^th April 2017 (“WM So I”)  had referred to Ms Ma’s mental handicap.  Indeed, in Mr WM So’s affirmation of 18^th May 2016 resisting the application for summary judgment, this was mentioned as well.

89.3  Siu I of 23^rd May 2017, whilst denying awareness of Mr So’s handicap, did not do the same in respect of Ms Ma’s handicap.

89.4  Whilst in its listing questionnaire of 7^th June 2018, Premier Capital had indicated that one of the issues for trial was whether Mr So and Ms Ma appeared to be “mentally retarded” at the time of signing the Loan Agreement such that Premier Capital must have known of the same, Premier Capital at the same time confirmed that all the expert reports which it intended to adduce had been prepared in accordance with the court’s directions and that the case was ready for trial.  There was no suggestion that it would seek to obtain any expert examination of, or file expert evidence in relation to, Ms Ma.

89.5  In WM So II (dated 14^th February 2019 but not exchanged until 16^th September 2019 as explained above), Mr WM So gave further information regarding Ms Ma’s mental handicap including the facts that she holds a Registration Card People with Disabilities and has been certified by a psychiatric expert to be a mentally incapacitated person under the Mental Health Ordinance, and that the average person can easily tell that she is mentally handicapped.

89.6  Even Siu II of 16^th September 2019 did not raise any issue regarding the mental capacity of Ms Ma, or Mr Siu’s awareness of the same.

90.  The reality is that Premier Capital’s focus was never on Ms Ma (who is not an owner of the Property)  until several years after the commencement of proceedings.  Although Ms Ma acknowledged service of proceedings in October 2015 and did not file any Defence (until November 2018 after was granted legal aid), no attempt was made to enter judgment in default.  Nor was any application made for expert evidence in relation to Ms Ma upon the filing of her Defence in November 2018.  (And as mentioned above, no Reply was even filed until April 2022.)

91.  It was only in Premier Capital’s timetabling questionnaire of 16^th July 2019 that it indicated that it would seek to adduce expert psychiatric evidence in relation to Ms Ma.  Eventually the parties agreed that Ms Ma would be examined by the parties’ experts jointly and that a joint expert report would be filed.  Even then, Premier Capital continued to delay the matter.

91.1  On 23^rd October 2019, Master Kot gave leave to the parties to adduce expert evidence regarding the mental capacity of Ms Ma, and ordered that the joint examination of Ms Ma should be conducted before 22^nd November 2019.

91.2  LC’s letter of 4^th November 2019 set out draft joint instructions for joint examination.  Despite chasers, Fongs failed to respond in a timely manner and the deadline of 22^nd November 2019 lapsed.  Fongs eventually responded on 2^nd December 2019 and final agreement was reached on 17^th February 2020 as to the terms of the instructions.

91.3  LC’s letter of 24^th February 2020 asked for Premier Capital’s expert to fix a date for the joint examination.  However, LC had to send chasers from mid-March 2020 mid-May 2020 before a date could be fixed.

91.4  Eventually, the joint examination was conducted on 24^th June 2020, and the experts provided a joint report on 2^nd August 2020.

92.  As mentioned above, there was further delay occasioned by Premier Capital’s late disclosure of the video of the Meeting on 29^th November 2019, leading to a further round of expert evidence in relation to Mr So.  A supplemental joint expert report was not filed until 7^th April 2021.  Had the video been disclosed promptly back in 2016, this further delay would not have been necessitated – the matter could have been dealt with by the time of the original reports at the latest.

93.  The late disclosure also caused the Defendants to apply on 10^th June 2021 to amend their pleadings and WM So III.  Here again, Premier Capital failed to act expeditiously.

93.1  On 17^th August 2021, Master Rita So gave leave to the Defendants to further amend their Defences and to file WM So III before 31^st August 2021, and to Premier Capital to file and serve Replies and a responsive supplemental witness statement on or before 12th October 2021.

93.2  The Defendants complied with the Master’s order and filed and served their amended pleadings and WM So III on 23^rd August 2021.

93.3  Premier Capital did not meet the 12th October 2021 deadline. Instead, it sought an extension of time for their filing of pleadings and witness statement, and they obtained up to 3^rd December 2021 to do so.  Yet it let this extended deadline also lapse, without seeking an extension of time.

93.4  The Defendants therefore considered that Premier Capital had chosen not to file amended Replies or supplemental statements, and proceeded in their listing questionnaire of 28^th February 2022 to ask for the action to be set down for trial.

93.5  Premier Capital did not file a listing questionnaire and instead on 4^th March 2022 filed yet another timetabling questionnaire asking for a case management conference and stated that no trial was to be requested at the hearing.  A day earlier, on 3^rd March 2022, Fongs had written to LC, saying (to LC’s surprise)  that they were in the course of preparing the Plaintiff’s Replies and supplemental witness statement – despite the fact that some three months had already passed after the (already extended)  3^rd December 2021 deadline.

93.6  On 17^th March 2022, Master Kent Yee ordered that unless Premier Capital filed its amended Replies and supplemental witness statements by 13th April 2022, it be debarred from doing so.

93.7  Eventually, the Plaintiff’s amended Replies and Siu III were filed on 13th April 2022.  This was six months after the original deadline of 12th October 2021.

93.8  Premier Capital finally filed a listing questionnaire on 27^th April 2022 confirming that it was appropriate to set the matter down for trial.  The parties jointly applied on 27^th April 2022 to set down the matter for trial.  On 28^th April 2022, Master Ho granted Premier Capital leave to set down the matter for trial within 42 days.  No application was made for the setting down until the 41^st day, 8^th June 2022.  The matter was thereafter fixed for trial.

94.  To a certain extent, it could be said that the Defendants could have applied earlier to amend their Defences and file WM So III, although it can be seen that they were first awaiting the outcome of the supplemental expert report before seeking to amend their pleadings.  However, the fundamental cause of the delay lay in the fact of the inexplicably late disclosure of the video of the Meeting.  Had this been disclosed back in 2016, the Defendants could have addressed it in their earlier rounds of pleadings and witness statements.  Furthermore, despite the late disclosure, Premier Capital compounded the delay by a further six months of delay in filing their amended pleadings and supplemental witness statement.

95.  Taking the above matters into account, and adopting a broad-brush approach, I first of all note that the parties had originally both indicated that the matter was ready to be set down for trial in May/Jun 2018. There was then Ms Ma’s application for legal aid in July 2018, which was not granted until October 2018.  Ms Ma filed her Defence in November 2018.  After Fongs took over in June 2019, they considered that two matters needed to be addressed, namely (1)  obtaining expert evidence in relation to Ms Ma, and (2)  disclosing additional evidence.

96.  As to (1), it will be recalled that Premier Capital’s original stance as set out in its timetabling questionnaire in mid 2018 was that it did not need expert evidence in relation to Ms Ma.  It was only in its timetabling questionnaire of 16^th July 2019 that Premier Capital indicated that it would apply for expert evidence. Whilst it is true that in the interim, Ms Ma had filed her Defence in November 2018, it does not seem that Premier Capital’s change of mind was caused by this, since some eight months passed before any application was made in July 2019, and since Fongs have said that it was after they took over in June 2019 that they considered that expert evidence needed to be obtained.

97.  Even after directions were given for such evidence, Premier Capital compounded the delay by its failure to deal with the instructions to the joint expert and to arrange the joint examination, despite repeated chasers from the Defendants, a total of some five months’ delay.  Had the application for expert evidence been made at the same time as it was in relation to Mr So, and had Premier Capital not delayed the process of obtaining the expert evidence, the process could have been completed at the same time that expert evidence was obtained in relation to Mr So (in November 2017).  I am mindful of the fact that Ms Ma did not obtain legal aid until October 2018 and therefore was not represented up to that time. However, it was always open to Premier Capital to have sought directions from the court had it wished to conduct an examination of Ms Ma.

98.  As to (2)  (additional evidence), there is Premier Capital’s late disclosure of the video of the Meeting on 29^th November 2019.  As I have indicated above, had the video been disclosed promptly back in 2016, the delay caused by the need to obtain supplemental expert evidence in relation to Mr So, amend pleadings and file supplemental witness statements would all have been obviated.  Again, Premier Capital compounded the delay with its further delay in amending its pleadings and preparing supplemental witness statements.  Even then, had the video been disclosed back in 2016, the factual and expert evidence regarding the video and amendments to pleadings could all have been dealt much earlier – in the case of the factual evidence, in WM So I of 26^th April 2017 and Siu I of 23^rd May 2017; in the case of the expert evidence, in the joint experts’ report relating to Mr So of 13th November 2017; and in the case of the pleadings, the two rounds of amendments undertaken to Mr So’s Defence in 2017.

99.  There is also Premier Capital’s further evidence relating to the “turnaround loan plan” which was raised in Siu II of 16^th September 2019. As mentioned above, there is no reason why it was raised for the first time only some four years after the commencement of the proceedings, and more than a year after Premier Capital had originally indicated that the proceedings were ready to be set down in June 2018.  There is no reason why it could not have been dealt with in Siu I of 23^rd May 2017.

100.  The Defendants’ multiple rounds of amendments, complained of by Premier Capital, were either made by 2017 (save for the minor amendments in April 2019 to Ms Ma’s Defence), or arose subsequently because of the additional factual and expert matters raised by Premier Capital, or were made after the matter had already been set down for trial and did not affect the trial dates.

101.  In my view, therefore, the delay after Premier Capital had originally indicated that the action was ready to be set down in its listing questionnaire of 7^th June 2018, up to the time when it actually eventually applied for setting down on 8^th June 2022, was caused by Premier Capital, aside from the two and a half months between 25^th July 2018 and 12th October 2018 taken to process Ms Ma’s application for legal aid.

102.  I consider that these three years and nine months of delay were unreasonable, exceptional and inexcusable, having regard to the facts that:

102.1   the delay was caused primarily by Premier Capital’s unexplained late disclosure of the video of the Meeting and evidence relating to the “turnaround loan plan”.  The Defendants could not have possibly known that there was a video as the fact of its existence had never been referred to prior to disclosure, so that there was nothing that they could have done to seek earlier disclosure;

102.2   the delay was also caused by Premier Capital’s belated decision to obtain expert evidence in relation to Ms Ma;

102.3   despite the fact that Premier Capital had already been late in disclosing the video of the Meeting, the “turnaround loan plan” and changing its mind regarding the obtaining of expert evidence regarding Ms Ma, it compounded the delay by further delay in dealing with the supplemental factual evidence, expert evidence and amendments to pleadings arising from these matters;

102.4   all of this took place against the background that (i)  Premier Capital was in the meantime claiming 30% per annum interest under the Loan Agreement and (ii)  the undisputed joint experts’ evidence, known to Premier Capital by 13th November 2017, was that Mr So never had the mental capacity to enter into this agreement.

103.  I disallow three years and nine months’ interest to mark this period of delay.

I.  DISPOSITION

104.  In the light of my findings above, the amount actually lent to the Defendants was $371,583, and no repayment has been made thus far.

105.  Interest should run at the contractual rate of 30% per annum until the date of this judgment, less three years and nine months.

106.  Having regard to (1)  the fact that Premier Capital has been successful on only part of its claim and (2)  the costs caused by the additional procedural steps in terms of additional factual evidence, expert evidence (in respect of both Defendants)  and amendments to pleadings which were necessitated by its belated discovery and by its application for expert evidence in relation to Ms Ma, I make a costs order nisi that 50% of the costs of the action should be to Premier Capital, to be taxed if not agreed. There should be legal aid taxation in respect of the Defendants’ costs.

107.  There is no dispute that costs should be assessed on the District Court scale, having regard to the fact that the action could have been transferred to the District Court some years ago.

108.  The parties are to lodge an agreed draft order for approval reflecting the above within fourteen days.  In the absence of agreement, the parties are to lodge a joint letter with a draft order indicating which parts are agreed and which parts are disagreed, and the reasons for disagreement.