WEALTHY GLOBAL HOLDINGS LTD v. CELEBRITY CREDIT LTD

DCCJ 2148/2023

[2025] HKDC 170

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2148 OF 2023

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JUDGMENT

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Background

1.  By its Statement of Claim, the Plaintiff is claiming against the Defendant for a sum of HK$1,708,428.27 (the “Sum”) under contract, alternatively as damages for breach of trust, and declarative relief that the Defendant is liable to account for the Sum. The Plaintiff also claims that it is entitled to trace the Sum which is held on trust.

2.  It is common ground that both the Plaintiff and the Defendant were at the material times licensed money lenders. On 13 December 2016, they jointly extended a loan to Madam Chau Ching Han (“Madam Chau”). The loan was subsequently fully settled on 21 May 2018.

3.  It is the Plaintiff’s case that since then, the Defendant wrongfully withheld the Sum, being the share of the repaid amount to which the Plaintiff is entitled.

The Plaintiff’s case

4.  There is no dispute that by a Memorandum entered into between the Plaintiff and the Defendant on or around 13 December 2016, the Plaintiff and the Defendant agreed to lend HK$1,140,000 and HK$60,000 respectively to Madam Chau at the interest rate of 24% per annum. It was also agreed under Clause 2 of the Memorandum that they would receive the principal and interest simultaneously and proportionally without priority over each other. Clause 7 further provides that in respect of any repayment made by Madam Chau, including part repayment, the Defendant warrants to pay over to the Plaintiff its entitled share together with interest accrued thereon within 5 working days.

5.  Pursuant to the Memorandum, the Plaintiff and the Defendant thus extended a loan of HK$1,200,000 (the “Loan”) to Madam Chau under a Loan Agreement dated 13 December 2016. It is common ground the Plaintiff and the Defendant contributed 95% (i.e. HK$1,140,000) and 5% (i.e. HK$60,000) respectively to the Loan.

6.  As security for the Loan, a Second Legal Charge was executed in favour of the Plaintiff and the Defendant against the residential property registered in Madam Chau’s name on the same date.

7.  There is also no dispute that by 21 May 2018, Madam Chau had repaid the Loan in the total sum of HK$1,798,345.55 inclusive of interest (the “Loan Repayment”) to the Defendant. On 14 June 2018, the Plaintiff thus executed a Release with memorial no 18061400370152.

8.  The Plaintiff’s case is that by reason of the matters above, the Plaintiff is entitled to the Sum from the Defendant, being a 95% share of the amount repaid by Madam Chau.

9.  The Plaintiff called two witnesses at the trial. The first witness, Mr Tang Chi Hang (“Tang”), a director of the Plaintiff from 31 December 2015 to 10 May 2022, testified and confirmed that he was the one who signed the Memorandum on behalf of the Plaintiff extending the loan to Madam Chau, and also a Cooperation Agreement with the Defendant dated 16 March 2016 on behalf of the Plaintiff recording the cooperation between the two in relation to extension of loans to customers (the Cooperation Agreement”). He confirmed the above case of the Plaintiff.

10.  He explained that under the Cooperation Agreement[1], the validity of the agreement shall be for 1 year, i.e. from 16 March 2016 to 15 March 2017. As such, by the time the Loan Repayment was made by Madam Chau on 21 May 2018, the Cooperation Agreement had already ceased to have effect.

11.  The Plaintiff also called Mr Yeung Chun Kwong, a current director of the Plaintiff, who confirmed that Tang was a director of the Plaintiff during the material times. His evidence in this regard is not challenged.

12.  The Plaintiff further says that by the terms of the Loan Agreement, it was agreed and confirmed that Madam Chau shall make the Loan Repayment to the Defendant. As such, when Madam Chau repaid the Loan, the Plaintiff says the Defendant must have known that it was in receipt of the same in its own right and as an agent of the Plaintiff: see Bowstead & Reynolds on Agency (23^rd Ed), §§2-001, 2-003, 2-029 to 2-034, 3-042 to 3-043. The Plaintiff further says as an agent of the Plaintiff, the Defendant took upon itself a fiduciary obligation in respect of the Sum vis-à-vis the Plaintiff. Accordingly, the Defendant has been holding the Sum on trust for the Plaintiff: see Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at §§60-68.

13.  The Plaintiff’s case is that as the Defendant has failed and refused to return the Sum to the Plaintiff, and this amounts to a breach of trust. It follows that the Plaintiff has suffered damages in the sum of HK$1,708,428.27 and the Defendant is liable to account to the Plaintiff for the same, and the Plaintiff is also entitled to trace the Sum.

The Defendant’s case

14.  The Defendant called one witness, namely Mr Tam Tsz Hin (“Tam”), a director of the Defendant. He denies that the Defendant should pay the Sum to the Plaintiff, relying on the Cooperation Agreement.

15.  According to the Defendant, clause 2B of the Cooperation Agreement provides that the Plaintiff shall pay the Defendant a fee equivalent to 1% of the amounts of loans made to customers, being the administrative fees for the loan arrangements by the Defendant for effecting the cooperation. Such administrative fees are referred to as “commission” in the Defence, despite this was not the term used in the Cooperation Agreement.

16.  The Defendant says that under the Cooperation Agreement, such “commission” shall be paid by the Plaintiff to the Defendant 60 days from the loans made or be deducted from repayments made by customers.

17.  The Defendant’s case is that since there are outstanding administrative fees (or such “commission” as referred to) arising from other loan arrangements, those fees should be deducted from the loan repayments from the customers before the Plaintiff shall be paid its entitled shares in the loan repayments, including the loan repaid by Madam Chau in the present case. In particular, he sought to set out and describe in his evidence the various loans made by the parties during the period from 2016 to mid-2018, and alleged “commissions” that had not been paid by the Plaintiff to the Defendant.

The issues

18.  According to the Agreed List of Issues lodged on 16 July 2024, the issues in this case can be summarised as follows:

(1)  Whether the Plaintiff is entitled to the Sum from the Defendant pursuant to the Memorandum dated 13 December 2016?

(2)  Further and/or alternatively, whether the Defendant is in breach of trust by failing and refusing to return the Sum to the Plaintiff? If the answer is in the affirmative:

(a)  Whether the Plaintiff has suffered damages (i.e. the Sum);

(b)  Whether the Defendant is liable to account to the Plaintiff for the Sum?

(3)  In the further alternative, whether the Plaintiff is entitled to trace the Sum which the Defendant held on trust for it?

(4)  Whether the Cooperation Agreement is applicable to the transaction under the Memorandum dated 13 December 2016? If the answer is in the affirmative:

(a)  Whether the Defendant is entitled to deduct the “commission” from the Loan Repayment;

(b)  Whether the Defendant is entitled not to settle the Sum to the Plaintiff by reason of having to deduct the “commission” from the Sum?

19.  At the commencement of the trial, the Defendant confirmed it does not dispute that the Defendant did not return 95% of the Loan Repayment made by Madam Chau (i.e. the Sum) to the Plaintiff.

20.  As can be discerned from the parties’ pleaded cases, the Defendant predominantly relies on the Cooperation Agreement in defence of the Plaintiff’s claim. Apparently therefore, the only remaining real issue which I need to determine now is whether the Defendant is entitled to deduct the ‘commission’ from the Loan Repayment pursuant to the Cooperation Agreement. The Defendant contends that this is a defence of legal set-off.

Whether the Defendant is entitled to deduct the “commission” from the Loan Repayment

General principles of legal set-off

21.  The Plaintiff contends that a defence of set-off must always be specifically pleaded. In the absence of an express plea of set-off, no defence of set-off is available to the defendant. It is not the form of pleading but the true nature of what is pleaded that determines whether what is pleaded is or is not a set-off. Notwithstanding the above, a defence of set-off should state with some particularity the debt or other matter sought to be set-off in such a manner as will put the opposite party on his guard and prevent surprise – see Hong Kong Civil Procedure 2024 (Vol 1) at §§18/8/34, 18/17/1, 18/17/12; Robert John Francis Brothers & Anor v New Rui International Co Ltd [2023] HKCFI 3062 §§72-75 per DHCJ Le Pichon;

22.  Besides, a legal set-off is only available where the claims on both sides are liquidated or monetary which can be ascertained with certainty and precision at the time of pleading – see Karpex (HK) Ltd v Yasmine Printing (China) Ltd [2008] 1 HKLRD 199 at §§9-10 per Cheung JA (as his Lordship then was).

Whether set-off was pleaded in the Defence

23.  The Plaintiff submits that the Defendant has not expressly pleaded a defence of “set-off”, and only mentioned for the first time that its defence is one of legal set-off in its opening address at the trial.

24.  Having regard to the pleaded case of the Defendant, in particular paragraph 6(g), it is to me quite clear that the Defendant is seeking to deduct the alleged “commissions” from the repayments made by customers before payments are to be made to the Plaintiff. I accept that this is in the nature of a set-off.

25.  However, the matter does not end there, as the Plaintiff contends that the Defendant has not established its right to such deduction, and in any event, the alleged “commission” payable has not been set out or proven with sufficient certainty and precision as required.

Whether the amount of set-off is sufficiently ascertained

26.  The Plaintiff submits that firstly, in §6(e) of the Defence, the outstanding amount of the alleged “commission” was never pleaded. While it was stated in §6(b) of the Defence that the commission payable is the fee equivalent to 1% of the amounts of loans made, its meaning is open to interpretation. One possible interpretation is that it refers to the total amounts of the loans extended to the borrowers by the Plaintiff and the Defendant. However, it is not clear whether the references to the loans were references to the amounts of drawdown as opposed to the full loan facilities involved. The Plaintiff says the Defendant has simply not clarified this in its pleaded case. Neither has the Defendant adduced any evidence to show how the administrative fees pursuant to the Cooperation Agreement were calculated, or the amounts previously paid for other loan cases to establish its case.

27.  Moreover, the Plaintiff pointed out that from the cross-examination of Tam, it transpires that:

(1)  He could not recall the amount of administrative fees paid for the loan case of CLBWGHL0012016 relied upon by the Defendant (as pleaded in §6(e) of the Defence);

(2)  He also could not be certain whether the basis for calculating the administrative fees was (a) the amount of the loans extended to the borrowers by both the Plaintiff and the Defendant, or (b) solely the amounts of the loans extended to the borrowers by the Plaintiff;

(3)  On Tam’s own evidence, the outstanding amount of the administrative fees or the alleged commissions was not and could not possibly be ascertained at the time of the Defence, nor could such amounts be ascertained now.

28.  On this ground alone, the Plaintiff says this defence of legal set-off ought to fail.

29.  In any event, the Plaintiff further says that the Defendant is not entitled to any administrative fees or alleged commission for two particular cases, namely the loan cases of WGHL0012016 and CLB/WGHL0082016 under the Cooperation Agreement (as also pleaded in §6(e) of the Defence).

The loan case of WGHL0012016

30.  The Defendant heavily relies on this loan case (involving an alleged loan of HK$60 million) for deduction of the alleged “commission”.

31.  However, it is expressly stated in Clause 2A of the Cooperation Agreement that the Plaintiff and the Defendant shall contribute 95% and 5% respectively to a loan extended to a borrower[2]. It is not disputed that under the loan case WGHL0012016, the Plaintiff had contributed 100% to the loan extended to the borrower.

32.  It is also expressly stated in Clause 3 of the Cooperation Agreement that the parties shall sign a cooperation memorandum for each cooperation project setting out the rights and responsibilities of each party[3]. The Plaintiff points out that there is no evidence that such a cooperation memorandum was ever signed or executed between the Plaintiff and the Defendant for WGHL0012016.

33.  Further, the Plaintiff says nothing in the Loan Agreement or the Memorandum for WGHL0012016 shows that the Defendant had participated in the said loan arrangement. The loan agreement for WGHL0012016 was in fact different from the other loan agreements and the memoranda for loan cases under the cooperation of the Plaintiff and the Defendant. A summary of which has been set out by the Plaintiff as follows:

Loan case reference	Date	Document
CLB/WGHL0012016	10/5/2016	Loan Agreement
CLB/WGHL0032016[4]	16/6/2016	Loan Agreement
CLB/WGHL0042016	28/6/2016	Loan Agreement
CLB/WGHL0052016	5/8/2016	Loan Agreement
CLB/WGHL0062016	12/8/2016	Loan Agreement
CLB/WGHL0072016	24/8/2016	Loan Agreement
CLB/WGHL0082016	13/12/2016	Loan Agreement

34.  Apparently, the Plaintiff and the Defendant had contributed 95% and 5% to the amounts of the loans extended to the borrowers in all of the loan cases referred to above. For clarity’s sake, Tam also explained in cross-examination that “CLB” and “WGHL” in the loan case references were to denote the Defendant and the Plaintiff respectively. Obviously, there is no reference to “CLB” in the loan case of WGHL0012016.

35.  As pointed out by the Plaintiff, Tam accepted in cross-examination that for WGHL0012016, the Defendant did not make any monetary contribution to the loan extended to the borrower. He explained that this was due to the Defendant not having sufficient funds at the time. As such, the Defendant was not the lender of this loan and so its name did not appear in the relevant loan agreement.

36.  On the other hand, the Defendant says Tam’s evidence is clear and straightforward in this respect. He was first approached for the loan case by his friend, an accountant. Given its then financial constraint, the Defendant was unable to make a 5% contribution. As a result, Tam asked the Plaintiff whether it would still like to conclude the deal. The Plaintiff responded in the affirmative, and agreed to pay the Defendant the commission. That is why the Defendant continued to contribute to that loan case and considered it as having been concluded pursuant to the Cooperation Agreement.

37.  Tam explained in cross-examination that as the loan was referred to the Plaintiff by him, the borrower would show him the cheques before making repayments to the Defendant. The Plaintiff says that Tam only mentioned this for the first time in his oral evidence. On the other hand, Tang, testifying for the Plaintiff explained in cross-examination that Tam’s role was at most an agent referring a case to the Plaintiff. There is no basis for Tam’s claim that the Defendant should be entitled to administrative fee for that loan, which simply did not fall within the Cooperation Agreement.

38.  In any event, the Plaintiff says even if the Defendant is entitled to administrative fees or an alleged commission under WGHL0012016, the calculation of the amount was neither pleaded nor put in evidence. While the loan facility under WGHL0012016 was HK$60,000,000, there is no evidence even to show whether the full amount of HK$60,000,000 was advanced to the borrower.

39.  Further, as pointed out by the Plaintiff, despite pleading and stating “the Commission of 2016 deducted from the repayments made by the debtor of this loan” in both the Defence and Tam’s witness statement, Tam admitted in cross-examination that this statement was wrong as a matter of fact. The Defendant did not in fact receive any loan repayment from this borrower as it was not the lender.

40.  The Plaintiff further pointed out that Tam was asked in cross-examination why the Defendant did not return any of the loan repayment made by the borrower under another loan case CLB/WGHL0042016. He answered that some of it was deducted to settle the Commission for WGHL0012016. The remainder of it was returned to the Plaintiff. He also stressed that he had the accounting records showing that some of the loan repayment was returned to the Plaintiff after deducting the Commission for WGHL0012016. However, Tam subsequently changed his evidence and said that after deducting the Commission for WGHL0012016, he also had to deduct some legal fees in relation to CLB/WGHL0012016 and CLB/WGHL0052016. Therefore, the Defendant did not return any of the loan repayments made by the borrower in CLB/WGHL0042016 to the Plaintiff. Notably, in the Defence and Tam’s witness statement, the loan case CLB/WGHL0042016 was not mentioned at all.

41.  It would appear to me that the evidence of Tam concerning the loan case of WGHL0012016, especially that it falls within the Cooperation Agreement, is a bare allegation, and is inconsistent with the evidence that the loan was 100% extended by the Plaintiff, and the lack of any evidence showing that any memorandum for cooperation was ever signed in respect of this loan case.

42.  In my view, the fact that some drawdown documents issued by the Plaintiff and signed by the borrower bear the Defendant’s address and contact numbers (as pointed out by the Defendant) is not a significant factor, given Tang’s explanation in his cross-examination that it was a mistake, although the records were not put right immediately after he became aware of the mistake.

43.  One further point is that notwithstanding the Plaintiff’s denial of the Defendant being entitled to any “commission” under WGHL0012016 in §3(g)(i) of its Reply, the Defendant argues that there was no denial regarding the relevance of WGHL0012016 in the Reply. In this regard, the Plaintiff submits, which I accept, that where the defendant pleads a set-off by way of defence only and not by way of counterclaim, it is sufficient for the plaintiff to reply generally. It is not necessary in the reply to traverse each and every individual statement of fact contained in the defence – see: Order 18, rule 14(1) of the Rules of the District Court (Cap 336H); Williamson v London & North Western Railway (1879) 12 Ch D 787, 794.

The loan case of CLB/WGHL0082016

44.  Clause 2B of the Cooperation Agreement states that the administrative fees are payable within 60 days of the monthly statement[5]. Tang said in evidence that Tam’s wife, Madam Hui Yin Wah Ivory, would pass him an invoice issued by the Defendant, together with a cheque for settling the administrative fees, for him to sign. However, he did not receive any invoice from the Defendant or Madam Hui for the loan case of CLB/WGHL0082016.

45.  In cross-examination, Tam initially said he did not recall whether the Defendant had issued any invoice for administrative fees. Subsequently, he said that although the Defendant did not issue any invoice to the Plaintiff for the administrative fees for CLB/WGHL0082016, the Defendant’s accounting staff did email a report to the Defendant to request payment for the administrative fees. This, however, was not pleaded, nor mentioned in his witness statement, nor was the email he mentioned produced in evidence.

46.  The Defendant has also not disclosed the actual loan repayments made by the borrower in the loan case of CLB/WGHL0082016. For that loan, the principal amount of the loan was HK$1,200,000 and the interest rate was 24% per annum. In the end, the total loan repayments made were HK$1,798,345.55. Despite that, it is strange, to say the least, that Tang was informed that the borrower had only repaid a total of HK$1,320,613.58. During cross-examination, Tam explained that the difference was for the mortgages the Defendant did for the borrower. Again, this was never mentioned in the Defence or his witness statement.

$300,000 security deposit paid by the Plaintiff to the Defendant

47.  Further, the Plaintiff highlighted to the Court that Clause 2B provides that the Plaintiff shall pay a sum of HK$300,000 to the Defendant as a security deposit. There is no dispute that this was paid as security for any outstanding administrative fees under the Cooperation Agreement.

48.  Tam initially admitted in cross-examination that the Plaintiff did pay HK$300,000 as security deposit pursuant to the Cooperation Agreement and the Defendant has still not returned it to the Plaintiff. When he was asked why this was not returned to the Plaintiff, he said it was a “set-up fee”, but after being shown Clause 2B of the Cooperation Agreement where it was stated expressly that the deposit shall be returned upon termination of the cooperation, Tam suddenly changed his evidence and said the Plaintiff was indebted to the Defendant and so the Defendant did not have to return it to the Plaintiff.

49.  As the Plaintiff now points out, although the Plaintiff is not claiming for the return of HK$300,000 in these proceedings, it is undeniable that the Defendant has failed and refused to return the amount to the Plaintiff, and is still retaining the same.

Effective period of the Cooperation Agreement

50.  The Plaintiff went on to stress that as stipulated in Clause 8, the effective period of the Cooperation Agreement was one year only, up to 15 March 2017. This does not sit well with Tam’s evidence in court that it is now the Defendant’s case that it was still managing the loans for the Plaintiff and therefore it should be entitled to the administrative fees even after the expiry of the Cooperation Agreement, as otherwise, the Defendant would be doing work for nothing. Further, it was never the Defendant’s pleaded case that the administrative fees would be payable beyond the expiry of the Cooperation Agreement. This is contrary to the provision for the effective period under that agreement, and it does not make any commercial sense for such fees to be payable even after expiry of the agreement.

51.  In any event, the Defendant never pleaded that it sought to set-off any commission beyond the expiry of the Cooperation Agreement. It only pleaded that commission should be deducted from the Loan Repayment.

52.  On the other hand, the Defendant submits that all the evidence given by Tang as regards clause 2B squarely shows its absurd implications if it is so construed by the Court. The Court must seek to strike a balance between ‘the indications given by the language and the implications of the competing constructions’: Wood v Capita Insurance Services [2017] AC 1173 at §11. The Defendant also refers to Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 per Lord Reid:

“The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make their intention abundantly clear.” [underline added]

53.  Further, ‘if detailed and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must yield to business common sense’ – see Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201 per Lord Diplock.

54.  I have no qualms with the principles relied to by the Defendant. However, having regard to the foregoing circumstances, I agree with the Plaintiff that under the clear provisions of the Cooperation Agreement with regard to its effective period, the administrative fees (not referred to or understood as “commissions”) were only payable from 16 March 2016 to 15 March 2017. There is no evidence that the Cooperation Agreement had been renewed after its expiry on 15 March 2017. Although the Cooperation Agreement does not expressly provide for the payment of administration fee after its expiry, it does not necessarily follow that that parties would have treated or construed the agreement as one that would provide for such continuation of payment. One possible and indeed commercially sensible epilogue of the agreement would simply be that the parties intended to manage their own businesses after the expiry of the Cooperation Agreement, should there be no express renewal. I do not see anything absurd about that.

55.  The Defendant asks the Court not to overlook the fact that the Defendant never charged the Plaintiff an extra fee even though the Defendant might need to pay for the external sourcing of the loan cases. However, as pointed out by the Plaintiff, Tam said in cross-examination that the Defendant already charged the borrowers a handling fee, which was for covering the costs of external sourcing of the loan.

56.  Further, it has not escaped me that what the Defendant is pursuing is no longer referred to as “administration fee”, but rather, “commissions”. This shows that the Defendant is shifting its ground and its claim from one nature to another without proper basis. In any event, the Defendant has not explained why the case for a set-off is now based on payment of “commissions”. Obviously, the reference to payment of commissions under the Cooperation Agreement is a subsequent invention.

Overall assessment of the witnesses’ credibility

57.  Insofar as the witnesses are concerned, I accept the Plaintiff’s submission that there are material inconsistencies of Tam’s evidence as stated above, such that I do not accept his evidence in relation to the issues in this case. To the contrary, I find that Tang is a credible and reliable witness overall. His evidence was not shaken under cross-examination. I accept his evidence.

Judgment

58.  By reason of the above analysis, although the Defendant has sought to plead a case of set-off in its Defence, I am not satisfied that the Defendant has sufficiently pleaded or established by evidence with certainty and precision its liquidated or monetary claim for the purpose of a set-off. I therefore find that the Defendant is liable to pay the Sum, i.e. HK$1,708,428.27, to the Plaintiff under the Memorandum, alternatively as damages for breach of trust, without any set-off, with interest at the rate of 1% over prime rate from 28 May 2018, i.e. a week after the date of repayment by Madam Chau of the Loan, to the date of judgment, and thereafter at judgment rate until full settlement.

59.  I also declare that the Sum is held on trust by the Defendant for the benefit of the Plaintiff, and the Plaintiff is entitled to trace the amount.

60.  Costs should follow the event. I order that the Defendant shall pay the costs of Plaintiff in this action, to be taxed if not agreed.

61.  Lastly, I would like to thank counsel on both sides for their helpful assistance.