HEPTA ARTOUS ICTHUDIA LTD v. CHAN WAI PIU AND OTHERS

HCA 3259/2016 & HCA 973/2018

[2019] HKCFI 3162

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3259 OF 2016

AND

ACTION NO 973 OF 2018

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D E C I S I O N

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1.  There are 2 appeals before me:

(1)  an appeal lodged by the 1^st defendant (“D1”) by his notice of appeal dated 15 July 2019 against the decision made by Master Anthony HK Chan on 2 July 2019, by which the master refused to admit an affirmation of Pang Chi Keung (“Pang’s Aff”) and a USB memory stick (“the Memory Stick”) which holds three video clips lasting a total of two hours (“the New Evidence Appeal”) in the summary judgment application made by the plaintiff (“P”); and

(2)  an appeal lodged by all the defendants (“D1”, “D2” and “D3”, collectively “Ds”) against the decision made by the master on 10 July 2019, by which the master entered summary judgment in favour of P (as creditor) against D1 (as debtor) and D2 and D3 (as guarantors) (“the Summary Judgment Appeal”). 

2.  I would first briefly outline the parties’ respective cases.

P’s case

3.  P’s case is that it has entered into 7 loan agreements (“the Loan Agreements”) with D1.  D2 and D3 are the guarantors of D1 for the 2^nd, 5^th, 6^th, and 7^th Loan Agreements (“L2”, “L5”, “L6” and “L7”).  Details of these Loan Agreements are summarized as follows: -

Loan Agreement	Date of Agreement	Scheduled Repayment Date	Principal (HKD)	Remark
1	8 October 2007	7 October 2016	50,000
2	23 October 2007	22 October 2016	250,000	D2&D3 as guarantors
3	18 April 2009	17 October 2016	122,000
4	18 December 2009	17 October 2016	22,000
5	7 June 2010	6 October 2016	150,000	D2&D3 as guarantors
6	14 May 2011	13 October 2016	300,000	D2&D3 as guarantors
7	26 March 2014	25 October 2016	200,000	D2&D3 as guarantors

4.  The repayment obligation in each Loan Agreement was guaranteed by D1 himself by a post-dated cheque drawn by D1 when D1 signed the relevant Loan Agreement. The date of the post-dated would be the scheduled repayment date under that Loan Agreement. However, each and every post-dated cheque was dishonoured upon presentation to the bank.

5.  P now sues D1 pursuant to the 7 Loan Agreements, and P also sues D2 and D3 pursuant to the guarantees in L2, L5, L6 and L7.

Ds’ respective cases

6.  D1 denies that he has any loan agreement with P.  His case is that he is a New Territories male indigenous villager who qualifies for a grant under the Small House Policy.  D1 claims that he has never signed or entered into any loan agreement with P.  According to D1, in around June 2007, through D3’s introduction (D3 is the younger sister of D2, who is the village representative of Tseung Kwan O village), he came to know that a Ms Chan Wan Ha (“CWH”) was interested to buy D1’s small house if D1 could obtain the relevant grant. In about October 2007, D1 and CWH reached an oral sale and purchase agreement (“the alleged oral agreement”). It was pursuant to this agreement that D1 received various sums of money from CWH.  D1 claims that under the alleged oral agreement, he was required to deliver some signed blank pieces of paper as well as 15 blank cheques (ie without any date, payee or amount written thereon) to CWH, and he did so.  D1 also claims that CWH in fact is P’s representative.

7.  D2’s case is that as a head of the village, he discharged his duty by signing a document to prove that D1 is an indigenous villager to facilitate D1’s small house development.  He has never signed any document guaranteeing any debt owed by D1 to P.

8.  D3’s case is that as a result of successfully introducing CWH to D1, she received HK$50,000 from CWH as agency fee.  She signed a written receipt and gave it to CWH.  As requested by CWH, D3 also signed several blank papers and passed the same to CWH.  As she and CWH were friends, D3 did not ask much about the usage of such blank papers, and D3 believed that was the usual way for confirming her work of being an agent in the transaction.  D3 denies that she has ever signed any document guaranteeing any debt owed by D1 to P.

The New Evidence Appeal

9.  The purpose of the New Evidence Appeal is to admit Pang’s Aff into evidence in the summary judgment application, and the purpose of the affirmation is to produce the Memory Stick.  According to D1, the Memory Stick contains video clips of a meeting between P’s representative CWH and 4 other persons in around November 2016. D1 has also produced transcripts of the said video recording in this hearing. The accuracy of the transcripts, however, is disputed by P.

10.  Mr Osmond Lam (together with Mr Dexter Leung) submits that the said video clips show that CWH was involved in an arrangement to invest in small houses of indigenous villagers, including that of D1.  In Mr Lam’s submissions, the video clips would strengthen D1’s case. 

11.  With respect to Mr Lam, I am of the view that D1 cannot derive any assistance from the said video clips.  The crux of D1’s case is the alleged oral agreement and the delivery of some signed blank papers and some signed blank cheques by D1 to CWH pursuant to the alleged oral agreement.  I do not see how the video clips can be evidence proving these matters, including the existence of the alleged oral agreement.  Nothing remotely touching upon these matters, let alone direct evidence on the issues, can be found in the video clips.

12.  For this reason, I refuse to admit the video clips into evidence.  I dismiss the New Evidence Appeal and affirm the order made by the master on 2 July 2019.

The Summary Judgement Appeal

13.  I have to say that there are some unexplained features in Ds’ respective cases:

(1)  In relation to L2, L5, L6 and L7, P’s case is that these loan agreements were signed by D1 as the borrower, and D2 and D3 as the guarantors.  D1 and D3 have not denied in their affirmations that the signatures on these loan agreements are their signatures.

(2)  Both D1 and D3 said that they had signed some blank papers (ie completely blank with nothing thereon) and gave them to CWH. However, this cannot explain why both D1’s signatures and D3’s signatures are found on L2, L5, L6 and L7.  Since both D1’s signature and D3’s signatures are found on these loan agreements, D1’s case and D3’s case cannot be true at the same time.

(3)  D2 has never explained why the signatures, which appear to be his signatures, are found on L2, L5, L6 and L7.

14.  At the same time, I am of the view that there are also some unexplained features in P’s case.  In his second affirmation made in support of P’s application for summary judgment, P’s director Mr Chan Wan Chit Alvis said:

“17. As early as in October 2007, I already knew that the 1^st Defendant was planning to build a Small House and therefore in desperate need of money to build small house. In view of helping out the 1^st Defendant, I, on behalf of the Plaintiff, agreed to lend money to the 1^st Defendant to build the Small House.

18. As mentioned in paragraph 3 of my 1^st affirmation, the family corporate vehicles that we have are mainly engaged in property investment activities so to ensure there would be adequate funds to support my mother (viz. Madam Lau’s) daily expenses. My family members, thus, have reservation that if we lent money interest free to the 1^st Defendant, we would have missed investment opportunities. If such time came, our family would then be forced to go out and borrow money from banks, credit cards, or other financial institutions so to invest on those properties.

19. I and my family members knew from friends that it would be illegal to charge an interest rate over 60% per annum. As said, our family members’ aim was all along to just invest in the property market and not to make money lending as our business. The 40% that we eventually decided to charge is merely to set off the costs that we would be likely to incur if we have to borrow money from banks, credit cards, or other financial institutions in order to invest on other properties.

20. At no times did I ever make any representations to the 1^st Defendant that the Plaintiff was running a business of money lending.  Likewise, to the best of my knowledge and the Plaintiff’s knowledge, no representatives, agent, employee, and/or servant of the Plaintiff ever represented to the 1^st Defendant or anyone that the Plaintiff was running a business of money lending.”

15.  P is saying that it was only helping D1 to develop his small house by providing loans to D1, and P has not made any profit in the provision of those loans.  The purpose of charging an interest at the rate of 40% per annum on the loans is only to cover P’s costs in providing the loans to D1.  However, the following questions remain unanswered:

(1)  why P was willing to help D1, bearing in mind there would be no profit from the provision of the loans to D1 and P had to bear a risk that D1 might not be able to repay the loans and interests as scheduled;

(2)  why in each loan agreement, the scheduled repayment date is a date in October 2016;

(3)  every time when P agreed to provide a loan to D1, why P was satisfied that D1 would be able to repay the loan plus interest thereon in October 2016;

(4)  why P required the loans to be guaranteed by 2 guarantors in L2, L5, L6 and L7, but not in other loan agreements; and

(5)  why P would accept the guarantees provided by D2 and D3 without checking their respective financial positions.

16.  Ds have not raised the provisions in the Money Lenders Ordinance (“MLO”) in their defence and affirmations.  However, MLO has been raised in counsel’s submissions.  In my view, although the MLO is only raised in the submission stage, I am obliged to examine whether, taking P’s case at its highest, the provisions in the MLO would prevent P from obtaining summary judgment[1].

17.  In my judgment, in respect of the 7 loan agreements, arguably P is a money lender for the purpose of the MLO.  As defined in s.2 of the MLO, a person whose business (whether or not he carries on any other business) is that of making loans is a money lender, unless any exemption in Part 1 or Part 2 of Schedule 1 to the Ordinance applies.  Profit-making is not a necessary ingredient in the definition of “money lender”.  Based upon the evidence before the court, I am of the view that in respect of the 7 loan agreements, arguably P was in a business of making loans, and P did not fall within any exemption provided in Schedule 1. Mr Simon So, counsel for P, has fairly accepted this.

18.  It follows that arguably, by reason of s.20 of the MLO, P may not be able to enforce the guarantees in L2, L5, L6 and L7 against D2 and D3.  S.20 of the MLO provides:

“(1) A money lender who makes any agreement for the loan of money in relation to which security is provided shall within 7 days after the making of the agreement give to the surety (if a different person from the borrower)—

(a) a copy of the note or memorandum in writing made under section 18(1);

(b) a copy of the security instrument, if any; and

(c) a statement in writing signed by or on behalf of the money lender showing—

(i) the total sum payable under the agreement by the borrower;

(ii) the various amounts comprised in that total sum with the date, or the mode of determining the date, when each becomes due.

............

(4) If a money lender fails to comply with subsection (1) ...... he shall not be entitled, while the default continues, to enforce the security so far as provided in relation to the agreement.”

19.  Assuming that P is a money lender in relation to L2, L5, L6 and L7, P has not complied with s.20(1)(a) for failing to provide the documents specified therein (ie a copy of the note of memorandum in writing satisfying the requirements in s.18(1)(a) and (b) in respect of each loan) to D2 and D3.  P has not yet provided the documents required under s.20(1)(a) to D2 and D3.  In the circumstances, by the operation of s.20(4), P is not entitled to enforce the guarantees under L2, L5, L6 and L7 against D2 and D3.  The court has no discretion to enforce the guarantees in these circumstances.

20.  Further, assuming that P is a money lender at the times of the 7 Loan Agreements, P would have failed to comply with the requirements in s.18(1) and s.23 of the MLO.  By reason of the unexplained features set out in [15] above, I cannot say for sure that the discretion under s.18(3) and s.23 should be exercised in favour of P at this stage.  I am of the view that there are some material facts behind the 7 Loan Agreements which have not yet been revealed.  The whole picture has to be found out in a trial.  The court can only decide how to exercise the discretion after knowing all the circumstances.

21.  As said by DHCJ Wilson Chan (as he then was) in Li Chuen Kwai  v Po Lam Construction Development Ltd (HCA 2376/2013, 24 September 2014) in [13], “[w]here there are unexplained features in both the claim and the defence, no tentative assessment of strengths should be made, but unconditional leave to defend should be given.”  As pointed out in the above, there are unexplained features in P’s case and in Ds’ respective cases.  In my judgment, no summary judgment should be given to P in the circumstances.

22.  I am also of the view that the matters set out in [15] to [20] above constitute some other reason for trial, and summary judgment should not be given in these circumstances.  See Hong Kong Civil Procedure 2020, Volume 1, §14/4/10.

23.  For these reasons, I would allow the Summary Judgment Appeal and set aside the master’s order made on 10 July 2019 and grant unconditional leave to defend to Ds.

Disposition

24.  I make the order as set out in [12] and [23] above.  For the purpose of bringing these proceedings forward, I direct that any application for leave to amend the present pleadings shall be taken out within 28 days.

25.  As to costs, I say the following:

(1)  I have affirmed the master’s decision made on 2 July 2019.  The costs order included in that decision shall stand.

(2)  D1 has failed in the New Evidence Appeal.  There is no reason why costs should not follow the event.  Costs of the New Evidence Appeal should be paid by D1 to P forthwith and be summarily assessed.  P do provide a bill of costs for summary assessment to the court and to D1 on or before 8 January 2020, and D1 do provide a written reply to the said bill to the court and to P on or before 15 January 2020. 

(3)  I have set aside the master’s order made on 10 July 2019 and given unconditional leave to defend to Ds for the reasons given in the above.  In my view, in these circumstances, costs of the summary judgment application in the court below should be costs in the cause.

(4)  Although Ds are successful in the Summary Judgment Appeal, there are unexplained features in Ds’ respective cases. Further, with respect, the points upon which I decided to give unconditional leave to defend to Ds are not points raised by Ds.  In these circumstances, I am of the view that the fair costs order of the Summary Judgment Appeal should be costs of the appeal be costs in the cause.

(5)  While most of the time in the appeal hearing was spent on the Summary Judgment Appeal, D1 has put in a set of transcripts consisting of over 300 pages in the New Evidence Appeal.  No doubt that in the preparation of the New Evidence Appeal, P’s legal representatives have to spend much time to peruse the transcripts and to view the video clips in the Memory Stick.  Taking a broad brush approach, I am of the view that 70% of the time in relation to these 2 appeals was spent on the Summary Judgment Appeal, and the remaining 30% was spent on the New Evidence Appeal. Costs incurred in relation to these 2 appeals (including costs reserved) would be apportioned according to this ratio.

(6)  With no disrespect to Mr Lam, I am unable to grant a certificate for 2 counsel.

26.  Lastly, it remains for me to thank counsel for the assistance rendered to the court.