LEI SHING HONG CREDIT LTD v. LAM MEI YEE AND ANOTHER

HCMP 213/2023, HCMP 888/2023 and HCMP 903/2023

(Heard Together)

[2024] HKCFI 2563

HCMP 213/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 213 OF 2023

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AND

HCMP 888/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 888 OF 2023

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AND

HCMP 903/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 903 OF 2023

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(Heard Together)

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DECISION

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1.  The Plaintiff was and is a licensed money lender. It commenced these 3 sets of proceedings against the respective sets of Defendants to recover the money lent to them with interest and to enforce the respective legal charges securing the loans.

2.  The respective 3 loans in the 3 sets of proceedings were all guaranteed by Mr Yip Chi Wai (“Yip”) who therefore is a common defendant in them.  The other respective Defendants are :

a.  In HCMP 213/2023 (“HCMP 213”), Yip’s wife Madam Lam Mei Yee (“Lam”) is the other defendant, namely, the 1^st Defendant.

b.  In HCMP 888/2023 (“HCMP 888”) Madam Yip Suet Lei (“Madam SL Yip”) is the other defendant, namely, the 1^st Defendant.

c.  In HCMP 903/2023 (“HCMP 903”), Chen Chung Cheng (“Chen”) and Chou Wai Tsing (“Chou’) are the other 2 defendants, namely, the 1^st and 2^nd Defendants.

d.  Madam SL Yip, Chen and Chou are relatives of Yip.

3.  This is the substantive hearing of the respective appeals by the 3 sets of Defendants, ordered to be heard together on 14 March 2024 by this Court, against the respective substantive orders given by the respective Masters in the 3 sets of proceedings.

4.  The 3 sets of Defendants were all legally represented when they filed their respective Notices of Appeal.  Less than a month before this hearing, on 27 May 2024, all 3 sets of Defendants filed their respective Notices to Act in Person all dated 9 May 2024.

5.  All of the 3 sets of Defendants did not lodge and serve their written submissions 14 days before this hearing, ie. before 6 June 2024, or at all, as directed by me on 14 March 2024.

6.  At this hearing, only Yip and Lam appeared.  All the remaining Defendants in these 3 sets of proceedings were absent.  As they clearly have had notice of today’s hearing and these were their appeals, I proceeded with the hearing in their absence.

7.  Yip and Lam at the outset orally applied to adjourn the hearing on the ground that they only recently decided not to continue the engagement of their solicitors, and that they enquired with the Legal Aid Department on 12 June 2024 and formally submitted the papers to apply for legal aid on 17 June 2024.   However, at the time of the hearing, this Court and the Plaintiff have not received any Memorandum from the Legal Aid Department informing the Court that such applications have been made^[1]. Unsurprisingly, the Plaintiff opposed the application for adjournment.

8.  Having heard submissions, I refused the oral application for adjournment.  Oral reasons were given immediately at the hearing, essentially I refused because of the unjustifiable delay and lateness in applying for Legal Aid and prejudice to the Plaintiff.   Insofar as necessary, my said refusal and reasons should be taken as my order and reasons for lifting the statutory stay pursuant to section 15(4) of the Legal Aid Ordinance.

9.  Though no written submissions have been filed by all the Defendants, Mr Hon on behalf of the Plaintiff, very fairly and sensibly, did not object to Yip and Lam presenting their arguments orally for themselves in HCMP 213, and Yip for himself in HCMP 888 and HCMP 903, and relying on the written submissions filed by the same firm of former solicitors for all the Defendants for the hearings before the Masters in which the orders appealed against were made.

10.  It is trite that these appeals against the Masters’ orders would be conducted by way of a re-hearing.

11.  As all the court documents including all affirmations filed and all the submissions lodged are in English, and upon enquiry with Lam and Yip who expressed no preference, this Court renders this Decision in English.  

Basic facts in HCMP 213

12.  By a facility letter dated 24 March 2022 issued by the Plaintiff to Lam, duly signed on 25 April 2022 by Lam as the Borrower and Mortgagor and by Yip as the Guarantor, the Plaintiff agreed to grant a mortgage loan of HK$22,400,000 to Lam (respectively “the 213 Facility Letter” and “the 213 Loan”).

13.  The term of the 213 Loan was one year, and Lam would pay 12 monthly payments of interest and the principal was to be repaid in full on 27 May 2023.

14.  Of note are that

a.  the interest for the 213 Loan was stated in the 213 Facility Letter to be at 20% per annum for the first month and then at 8% per annum for all subsequent months and “subject to review at our discretion”[2];

b.  while in the Memorandum of the Loan Application signed by Lam and Yip[3], it was stated that

“The Rate of Interest Charged on the Loan:

Agreed Effective Rate: 9.00% per annum

(The period between the date of the loan and the date of the 1^st installment: 20.00% per annum.  The period after the date of 1^st installment until the repayment of the loan: 8.00% per annum)”;

c.  there was a term in the 213 Facility Letter charging Lam “Service Charge” :

“Service Charge:  8.00% p.a. on a day to day basis for any outstanding payment due and not paid from the due date to the date of payment” (“the Service Charge Clause”).

15.  On 25 April 2022, Yip also signed a Deed of Guarantee guaranteeing the liabilities of Lam under the 213 Loan.

16.  The 213 Loan was advanced to Lam on 27 May 2022.  On the same day, Lam executed a First Legal Charge charging the property registered in Lam’s sole name known as House 36, The Carmel, 168 Castle Peak Road, Tai Tam, Yuen Mun and motorcycle parking space No  M2 in the same estate (respectively “the 213 Legal Charge” and “the 213 Property”) to secure the 213 Loan.

17.  Twelve instances of repayments have been made by Lam to date^[4]. The last 3 of the repayments were made after these proceedings were commenced.

18.  There is no dispute that Lam has defaulted in repayment at the time of the issuance of the Originating Summons herein on 10 February 2023 (“the 213 OS”).

19.  All the repayments, the amount of interest owing and then the total amount due as on 8 March 2023 were tallied and calculated in the Loan Repayment Statement exhibited to the 1^st affirmation of Lam Kam Leung (“LKL”) filed on behalf of the Plaintiff in HCMP 213.  The total amount due on 8 March 2023 so calculated out in that Statement was HK$22,171,620.93^[5] . Of note are that in that Statement the interest was calculated at a fixed rate of 8% per annum, and that a total sum of HK$7,519.35 was charged as the 213 Service Charge and recorded as having been paid by Lam.  These calculations were not disputed by Lam or Yip. 

Basic facts in HCMP 888

20.  By a facility letter dated 30 September 2021 issued by the Plaintiff to Madam SL Yip, duly signed on 29 October 2021 by her as the Borrower and Mortgagor and by Yip as the Guarantor, the Plaintiff agreed to grant a mortgage loan of HK$3,100,000 to Madam SL Yip (respectively “the 888 Facility Letter” and “the 888 Loan”).

21.  The term of the 888 Loan was also one year, and Madam SL Yip would pay 12 monthly payments of interest and the principal was to be repaid in full on 4 November 2022.

22.  Also of note and similar to the 213 Loan,

a.  the interest for the 888 Loan was stated in the 888 Facility Letter to be at 20% per annum for the first month and then at 8% per annum for all subsequent months and also “subject to review at our discretion”;

b.  while in the Memorandum of the Loan Application signed by Madam SL Yip and Yip, it was stated that:

“The Rate of Interest Charged on the Loan:

Agreed Effective Rate: 9.00% per annum

(The period between the date of the loan and the date of the 1^st installment: 20.00% per annum. The period after the date of 1^st installment until the repayment of the loan: 8.00% per annum)”;

c. the 888 Facility Letter contained the same Service Charge Clause.

23.  On 29 October 2021, Yip also signed a Deed of Guarantee guaranteeing Madam SL Yip’s liabilities under the 888 Loan.

24.  The 888 Loan was advanced to Madam SL Yip on 4 November 2021.  On the same day, Madam SL Yip executed a First Legal Charge charging the property registered in Madam SL Yip’s sole name known as Unit B, 14^th Floor, Fok Ying Building, Nos 379 and 381 King’s Road, Hong Kong (respectively “the 888 Legal Charge” and “the 888 Property”) to secure the 888 Loan.

25.  A total of 22 instances of repayments have been made by Madam SL Yip to date.

26.  There is also no dispute that Madam SL Yip has defaulted in repayment at the time of the issuance of the Originating Summons herein on 9 June 2023 (“the 888 OS”). 

27.  All the repayments, the amount of interest owing and then the total amount due as on 23 August 2023 were tallied and calculated in the Loan Repayment Statement exhibited to the 1^st affirmation of LKL in HCMP 888.  The total amount due on 23 August 2023 so calculated out in that Statement was HK$3,148,896.13^[6].    Likewise and also of note are that in that Statement the interest was calculated at a fixed rate of 8% per annum, and that a total sum of HK$1,487.92 was charged as the 888 Service Charge with HK$1,373.52 counted as having been paid and HK$114.40 as outstanding Service Charge.  These calculations were not disputed by Madam SL Yip or Yip. 

Basic facts in HCMP 903

28.  By a facility letter dated 17 November 2021 issued by the Plaintiff to Chen and Chou, duly signed on 21 December 2021 by them as the Borrowers and Mortgagors and by Yip as the Guarantor, the Plaintiff agreed to grant a mortgage loan of HK$14,000,000 to Chen and Chou (respectively “the 903 Facility Letter” and “the 903 Loan”).

29.  The term of the 903 Loan was also one year, and Chen and Chou would pay 12 monthly payments of interest and the principal was to be repaid in full on 23 December 2022.

30.  Also of Note are that

a.  the interest for the 903 Loan was stated in the 903 Facility Letter to be at 21% per annum for the first month and then at 9% per annum for all subsequent months and also “subject to review at our discretion”;

b.  while in the Memorandum of the Loan Application signed by Chen, Chou and Yip, it was stated that  

“The Rate of Interest Charged on the Loan:

Agreed Effective Rate: 10.00% per annum

(The period between the date of the loan and the date of the 1^st installment: 21.00% per annum. The period after the date of 1^st installment until the repayment of the loan: 9.00% per annum)”;

c. the 903 Facility Letter contained the same Service Charge Clause.

31.  On 21 December 2021, Yip also signed a Deed of Guarantee guaranteeing the liabilities of Chen and Chou under the 903 Loan.

32.  The 903 Loan was advanced to Chen and Chou on 23 December 2021.  On the same day, Chen and Chou executed a First Legal Charge charging the 2 properties registered in their names jointly known as Flat G, 4^th Floor, Lai King Mansion, No 883 King’s Road, Hong Kong and Flat I, Ground Floor, Lido Apartments, Nos 860-878 King’s Road, Hong Kong (respectively “the 903 Legal Charge” and “the 903  Properties”) to secure the 903 Loan.

33.  A total of 23 instances of repayments have been made by Chen and Chou to date.

34.  There is also no dispute that Chan and Chou have defaulted in repayment at the time of the issuance of the Originating Summons herein on 13 June 2023 (“the 903 OS”). 

35.  All the repayments, the amount of interest owing and then the total amount due as on 23 August 2023 were tallied and calculated in the Loan Repayment Statement exhibited to the 1^st affirmation of LKL in HCMP 903.  The total amount due on 23 August 2023 so calculated out in that Statement was HK$14,233,436.89^[7]. Likewise and also of note are that in that Statement the interest was calculated at a fixed rate of 9% per annum, and that a total sum of HK$10,707.50 was charged as the 903 Service Charge with HK$10,512.65 counted as having been paid and HK$194.85 as outstanding Service Charge. These calculations were not disputed by Chen, Chou or Yip.

The respective subject Orders and the Notices of Appeal

36.  In HCMP 213, on 20 October 2023, Master D To ordered that the Plaintiff do recover from Lam and Yip a total sum of HK$22,724,751.91 with interest on the sum of HK$22,137,369.35 at the judgment rate (equals to daily rate of HK$5,336.02) from 21 October 2023 until full payment, that Lam deliver vacant possession of the 213 Property within 28 days after the service of the Order on her unless Lam do pay to the Plaintiff the ordered sum upon which the 213 Legal Charge would be released, and that Lam and Yip do pay to the Plaintiff costs assessed at HK$37,000 (“the 213 Order”).

37.  In HCMP 888, on 27 December 2023, Master Matthew Leung ordered that the Plaintiff do recover from Madam SL Yip and Yip the sum of HK$3,148,896.13 with interest on the sum of HK$3,053,160.61 at the rate of 8% per annum (equals to daily rate of HK$669.18) from 24 August 2023 to 27 December 2023 and then after at judgment rate until full payment, that Madam SL Yip do deliver vacant possession of the 888 Property within 28 days after the service of the Order on her unless Madam SL Yip do pay to the Plaintiff the ordered sum upon which the 888 Legal Charge would be released, and that Madam SL Yip and Yip do pay to the Plaintiff costs assessed at HK$92,667 (“the 888 Order”).

38.  In HCMP 903, also on 27 December 2023, Master Matthew Leung ordered that the Plaintiff do recover from Chen, Chou and Yip the sum of HK$14,233,435.89 with interest on the sum of HK$13,813,785.20 at the rate of 9% per annum (equals to daily rate of HK$3,406.14) from 24 August 2023 to 27 December 2023 and then after at judgment rate until full payment, that Chen and Chou do deliver vacant possession of the 903 Properties within 28 days after the service of the Order on them unless they do pay to the Plaintiff the ordered sum upon which the 903 Legal Charge would be released, and that Chen, Chou and Yip do pay to the Plaintiff costs assessed at HK$92,667 (“the 903 Order”).

39.  By their Notices of Appeal filed in HCMP 213, in HCMP 888 and in HCMP 903 respectively on 3 November 2023, on 10 January 2024 and also 10 January 2024, the 3 sets of Defendants seek the same set of relief on appeal, that (a) respectively the 213 Order, the 888 Order and the 903 Order be set aside, the OSes be dismissed or alternatively the proceedings be converted as if began by writ with directions for further conduct to be given.

Contentions advanced by the 3 sets of Defendants

40.  The 3 sets of Defendants made the same contentions that the Plaintiff has breached the following provisions of Money Lenders Ordinance Cap 163 (“MLO”):

a.  Section 18(2)(i):  the respective memoranda failed to set out “the rate of interest charged on the loan expressed as a rate percent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2” as required by section 18(2)(i);

b.  Section 22(1)(a) and (c):  the Service Charge entailed “the payment of compound interest” and “the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement”; and

c.  Section 27(1):   the Plaintiff had charged the respective borrowers legal costs in each of the 3 loans, which was illegal under section 27(1).

41.  The Defendants contended that as section 18(1) provides that any loan agreement in contravention of section 18 and the security given in respect thereof are not enforceable, and section 22(2) likewise effectively provides that an agreement contravening section 22 is unenforceable, unless the court is satisfied that in all the circumstances it would not be inequitable to enforce them, and the court may enforce them to such an extent and with such modifications and exceptions as it considers equitable, therefore

a.  the burden is on the Plaintiff to satisfy the Court that the 3 loans and the 3 Legal Charges are enforceable;

b.  the breaches and illegality are so serious that the 3 sets of proceedings should be dismissed; in other words, all the 3 loans and the 3 Legal Charges should be held unenforceable and all 3 sets of Defendant held not liable; and

c.  alternatively, there should be a trial investigating “all the circumstances” and the 3 OSes should be converted to an action as if began by writ.

42.  Indeed, for the purpose of investigating “all the circumstances”, and pending the hearing of these 3 appeals, the 3 sets of Defendants administered 3 respective sets of lengthy Interrogatories – in HCMP 213, dated 7 February 2924; in HCMP 888 dated 25 January 2024; and in HCMP 903 dated 25 January 2024 - in which the Defendants administered 10 interrogatories (with many sub-paragraphs) interrogating the Plaintiff, among others, (a) on the total number of court cases its facility letters have ever been subjected to judicial ruling or judgment, with all details,  (b) on total number of facilities letters ever issued by the Plaintiff containing similar provisions now complained of by the Defendants, with all details including the total amount of all these loans, the total amount of service charge ever so charged, and so on and so forth.

43.  The Plaintiff issued a summons in each of the 3 sets of proceedings seeking an order that the Defendants do withdraw these Interrogatories.  At the hearing on 10 April 2024 before this Court, the Defendants withdrew the 3 sets of Interrogatories.  The withdrawal in my view was right and sensible as the Defendants clearly are not entitled to such wide-ranging investigations into the business affairs of the Plaintiff, which are wholly unconnected with the 3 loans transactions in these sets of proceedings.

No necessity to convert the 3 sets of proceedings to writ action

44.  As we will be alluded to below, the fact that sections 18(2)(i) and 27 were breached were admitted by the Plaintiff and there was no factual dispute on the circumstances.  While the question of whether section 22 was breached depends on the construction of the Service Charge Clause and the application of the proviso in that section, and there was no relating factual dispute.  There is no necessity justifying any need to convert the 3 sets of proceedings as if began by writ, which would entail much more costs, time and delay.

Breaches of section 27 admitted by the Plaintiff

45.  It is common ground that the 3 sums in the 3 sets of proceedings said to have been paid in contravention of section 27 were legal costs and disbursements paid by the respective borrower(s) to the solicitors for preparing the respective Legal Charges.  They were in the respective sum of HK$34,900, HK$10,500 and HK$23,000 in relation to the 213 Loan, the 888 Loan and 903 Loan.

46.  In §3 of the 2^nd affirmation of KLK in HCMP 213, §7 of the 1^st affirmation of LKL in HCMP 888 and also §7 of the 1^st affirmation of LKL in HCMP 903, the Plaintiff has readily accepted that there were respective breaches of section 27 and has indicated that the respective amounts would be deducted from the respective amounts claimed in the 3 sets of proceedings.

47.  There is no contention or even suggestion that the amounts of the respective legal costs were other than reasonable and that the Plaintiff did not derive any benefit from their payment by the Defendants to the solicitors.

Breaches of section 18(2)(i) accepted by the Plaintiff in the hearing

48.  In his written submissions, Mr Hon, counsel for the Plaintiff referred to the Court of Appeal case of Kwok Ying Lung v Ko Chi Hung & Another [2001] 3 HKC 380 and the CFI case of Celebrity Credit Limited v Koo Sau Chun (HCMP 312/2020, unrep., 6 January 2023, Recorder William Wong SC) and submitted that the MLO does not prohibit a loan agreement from having more than one interest rate (as in the present case, where the Plaintiff charged a higher rate pf interest for the first month and a much lower one for the remaining period).

49.  The Plaintiff accepted, rightly, that the facts stated in a memorandum required by section 18 must be true facts.  The Plaintiff further voluntarily, and rightly and fairly, admitted through Mr Hon that the “Agreed Effective Rate” stated in the respective Memoranda were not completely accurate (a) in that the effective interest rate calculated out according to Schedule 2 of the MLO would differ, albeit rather insignificantly, from the “Agreed Effective Rate”, and (b) with the deduction of the respective legal costs from the principal (which the Plaintiff had agreed to), there would contribute to yet another minor difference in the 2 rates.  To that extent, Mr Hon fairly, and in my view rightly, accepted that section 18(2)(i) was thus breached in that the interest rate has not been accurately stated in the respective memoranda.

50.  The Plaintiff also fairly acknowledged at the hearing that the interest rate in the respective memoranda could have been better expressed as “rate as calculated in accordance with Schedule 2” rather than “Agreed Effective Rate” to avoid potential confusion.

51.  In the circumstances, and particularly having regard to the fact that I did not have the assistance of legal arguments from the Defendants, I do not find it necessary or suitable to express a view on the point submitted by Mr Hon mentioned in paragraph 47 above.

52.  On behalf of the Plaintiff, Mr Hon submitted that the calculation of the actual amount charged by way of interest was clearly and consistently stated in the respective Facility Letters and Memoranda in that they both stated that a fixed but higher rate per annum of interest was charged in respect of the first monthly instalment of interest (respectively 20% and 21% per annum) and a constant lower rate of interest were charged for the remaining monthly instalments (respectively 8% and 9% per annum). Such that considering “the purpose of enacting section 18(2) was to inform the borrower of facts relating to his loan” (per Yuen J, as she then was, in Kwok Ying Lung §46), he submitted, the Defendants have indeed been so informed, they had not been misled and did not suffer harm caused by the breach, and therefore the above breach by the Plaintiff could be regarded as technical.  I accept his such submission.

Breaches of section 22 ?

53.  This was disputed by the Plaintiff.

54.  The relevant part of section 22 reads:

“22. Illegal agreements

(1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—

(a) the payment of compound interest;

(b) prohibiting the repayment of the loan by instalments; or

(c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement;

Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Ordinance as part of the interest charged in respect of the loan.”

55.  As I understand it, the Defendants contended that there was a compound interest element in the Service Charge because it was expressed to be “8.00% p.a. on a day to day basis”.

56.  In my view, though the phrase “day to day” was used, construing the Service Charge Clause, it is reasonably clear that what was meant was that the Service Charge was calculated at 8% per annum on the number of days such repayment was in default, and it did not provide for the calculation of the Service Charge at such an interest rate with daily rest.

57.  Moreover, the proviso in section 22(1) clearly provides that a lender is entitled to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal.  Here, the Service Charge, as I hold, was charged at an interest rate per annum, which is a simple interest, and the rate was not higher than that charged for the principal.

58.  I thus conclude that the Plaintiff has not breached section 22(1)(a) or (c).

Not inequitable to enforce the 213 Loan, the 888 Loan and the 903 Loan ? The extent of enforcing them and the related securities ?

59.  The applicable principles concerning the exercise of discretion under sections 18(3) and 22(2) were elucidated by the Court of Appeal in Easy Fortune Property Ltd v Yung Chun Him [2019] HKCA 1055, thus:

“56. Under section 18(3), the burden falls on the money lender to satisfy the court that in all the circumstances it would be inequitable to refuse enforcement notwithstanding non-compliance of section 18(1) and (2). The principles on the exercise of discretion have been set out by the Court of Final Appeal in Emperor Finance Ltd v La Belle Fashions Ltd & Ors (2003) 6 HKCFAR 402 and Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529. In short, in exercising its discretion the court examines the breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable: Emperor Finance Ltd at [119] and Strong Offer Investment Ltd at [29] and [61]. In Emperor Finance Ltd at [102], Ribeiro PJ pointed out that:

‘… The policy of section 18 is to ensure that potentially unsophisticated borrowers are left in no doubt as to how much money exactly they are borrowing by way of principal and what interest they will have to pay on that loan, to which end, such information has to be set out and expressed in the prescribed manner in the memorandum to be signed by the borrower.’

57. It was additionally pointed out in Strong Offer Investment Ltd that section 18 offers one of the key protections to uneducated, ignorant and unsophisticated borrowers who may not be aware of all the terms and conditions under which the loans are made to them (at [18]), and that the court has to bear in mind the parties’ respective rights and obligations under the statute as well as the agreement made by them (at [20]).

58. As for the discretion under section 22(2), Chan PJ observed obiter in Strong Offer Investment Ltd at [42] that:

‘Although the wording is similar to that in s.18(3), this discretion serves a different function and provides a different protection to borrowers, namely, from a contractual requirement to pay compound interest. … In my view, the object of the discretion is to allow the money lender to recover the loan together with any amount or rate of interest which is permitted under the provisions of the Ordinance, where the court considers it equitable to make such an order.’ ”

60.  Applying these principles, and despite the Defendants’ repeated characterization of the breaches as being very serious, which I do not accept, I have no hesitation in concluding that it is not inequitable to enforce the 3 loans for these reasons:

a.  The breach of section 27 was minor in that the Plaintiff was not working in collusion with a third party intending to take advantage of the respective borrowers. As said, they were legal costs, the amounts were reasonable, and the Plaintiff did not derive any benefit from them.

b.  Lam was working in a bank and Yip, who was the person instrumental to taking out the present 3 loans, was a businessman and is evidently educated.  There is no doubt in my mind that Lam and Yip were able to understand the interest charged in the manner as set out in the Facilities letters and Memoranda.

c.  The breach of section 18(2)(i) was minor and verge on technical. As said in paragraph 52 above, I accept Mr Hon’s submission that while the interest rates have not been accurately stated as one rate, their calculations were straightforward and had been clearly and consistently set out in the respective Facility Letters and Memoranda.  It is not the Defendants’ case that they have been misled or harmed by the Plaintiff’s failure to accurately state the effective interest rate.  

d.  All the borrowers freely and voluntarily entered into the respective loans with full knowledge of the terms of the respective loan and Legal Charge.

e.  Full amounts of the loans (save the respective legal costs) were in fact advanced to the respective borrowers.

f.  As has been emphasized by the Plaintiff but undisputed by the Defendants, the effective rates of interest in the 3 loans were on the low side of the market rate.

61.  Concerning the extent the 3 loans and the related securities the Court should enforce, the consideration for the Court is what is equitable.

62.  Lam and Yip at the hearing submitted that the interests in the 3 loans should not be enforced altogether.  I accept Mr Hon’s submission and find such proposal was disproportionate and not equitable at all.

63.  I also consider the Plaintiff’s following conducts fair and reasonable and will take them into account though would only be according them minor weight. The Plaintiff very early on and readily waived the higher interest rate for the first instalment of interest in each of the 3 loans such that the Plaintiff effectively charged the respective borrowers interest at 8% or 9% per annum, as the case may be, it readily accepted at the outset that it has breached section 27 and agreed not to include the legal costs in their claims, and the Plaintiff stated in the affirmations of LKL that they were taking steps to revise the terms of its facility letter to avoid breach of section 18(2)(i) in the future, the veracity of which I have no reason to doubt. 

64.  In the round, I accept Mr Hon’s submission that it is equitable to enforce the 3 loans and the related securities to recover any unpaid principal in full and to recover outstanding interest to the extent that the Plaintiff be allowed only to charge interest at 8% per annum in the cases of the 213 Loan and the 888 Loan and at 9% per annum in the case of the 903 Loan.  I so hold and order.

65.  As I hold that the Plaintiff did not breach the MLO by enforcing the Service Charge in the 3 loans, I hold that the Service Charges provided in the 3 Facility Letters are enforceable.

Disposal

66.  In the premises, I am effectively dismissing these appeals by the 3 sets of Defendants, subject to calculating out and verifying that (a) the 3 respective sums ordered to be paid by the respective Defendants in the 213 Order, the 888 Order and 903 Order remain accurate if calculated according to my holdings above, and (b) the amounts of the 3 respective principals on which interests are being charged are likewise accurate.

67.  The Plaintiff is directed to set out the calculations and work out those numbers according to this Decision within the next 7 days and serve the same on the respective Defendants for their agreement, and report to this Court 14 days thereafter by letter setting out the agreed sums, or failing agreement, seeking the Court's approval on the Plaintiff's calculations and final amounts.  To the extent that the agreed or approved sums differ from those set out in the respective Master's orders, if at all, such part(s) of the relevant order(s) of the respective Master(s) should be considered as having been hereby varied.

68.  Provisionally, and in light of the fact that there were breaches of the MLO by the Plaintiff, I would not be minded to allow the Plaintiff to recover costs on indemnity basis, even if such was provided for contractually.  The costs before the Masters did not seem to have been awarded and assessed on indemnity basis, and presently, I see no reason to disturb them.  There will be an order nisi to that effect.  Also provisionally, I think the costs of these 3 appeals should follow the event to be taxed on party and party basis.  I so order on nisi basis.  These 2 orders nisi will become absolute within 14 days after the final sums are agreed or approved by this Court unless any party applies by summons to vary before that time.

69.  This Court has previously heard a number of applications in these 3 sets of proceedings, some were heard together and some were not, and a number of sets of costs were ordered to be assessed summarily, which are pending.  As discussed with the parties at the hearing who indicated no objection, since these 3 sets of proceedings are hereby finally determined (subject to appeal, if any), I would vary the previous costs orders made by this Court to the extent that, in lieu of summary assessment, such costs are to be taxed with the present set of costs in one-go before a Master, if not agreed.

70.  Lastly, I thank Mr Hon, Lam and Yip for their assistance. 

HCMP 213/2023

HCMP 888/2023

HCMP 903/2023