FIELD FINANCE LTD v. SIT KA MAN

DCCJ 828/2019
DCCJ 318/2019
(Consolidated)

[2021] HKDC 864

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 828 OF 2019

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 318 OF 2019

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(Consolidated by the Order of Master Catherine Cheng dated the 10^th day of April 2019)

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JUDGMENT

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A. INTRODUCTION

1.  This is the trial of two consolidated actions.

2.  The Plaintiff is a money lender licensed under the Money Lenders Ordinance (Cap 163) (“MLO”) seeking to enforce the loan agreement dated 16 August 2018 (the “Loan Agreement”) pursuant to which the Plaintiff advanced a loan of HK$1,800,000 to the defendant (“Mr Sit”), which was secured by a second legal charge (the “Second Legal Charge”) over a property solely owned by Mr Sit.  The Plaintiff also seeks an order for the delivery of vacant possession of the Property.

3.  It is the parties’ common ground that:-

(1)  Before entering into the Loan Agreement, as of August 2018, Mr Sit was indebted as follows:

(a)  a mortgage with Hongkong and Shanghai Banking Corporation Limited (“HSBC”) secured by the Property, the outstanding principal sum of which was around HK$2.1 million, to be repaid monthly in the sum of HK$7,310;

(b)  an unsecured personal loan of HK$200,000 with United Asia Finance Limited, to be repaid monthly in the sum of HK$6,520 (the “UA Loan”);

(c)  an unsecured personal loan of HK$200,000 with PrimeCredit Limited, to be repaid monthly in the sum of HK$5,334 (the “PrimeCredit Loan”);

(2)  Pursuant to the Loan Agreement, the interest rate was 24% per annum and Mr Sit was to repay the loan by 12 monthly instalments from 16 September 2018, the first 11 of which would be in the sum of HK$36,000 each, and the last of which would consist of the principal sum of HK$1,800,000 together with the final interest instalment to be paid on or before 16 August 2019.

(3)  On 16 August 2018, Mr Sit signed the Loan Agreement and the Second Legal Charge at the office of Messrs Philip T F Wong & Co who (“PTFW”) who were instructed by the Plaintiff to release loan proceeds, and drew down the loan.  Of the HK$1,800,000 to be advanced under the Loan Agreement:

(a)  HK$108,000 in the form of three post-dated cheques of HK$36,000 each were retained by PTFW as the first three monthly instalments;

(b)  HK$250,000 was subsequently retained by PTFW to discharge the UA Loan following which the balance of the sum was released to Mr Sit; and

(c)  As for the remaining HK$1,442,000, HK$721,000 was issued to Mr Sit as a cash cheque and HK$721,000 was issued to him as a cross cheque (the “Split-Cheque Arrangement”).  Both cheques were drawn from PTFW’s account with the Bank of East Asia (“BEA”).

(4)  Apart from the HK$108,000 retained by PTFW, no payment was made under the Loan Agreement.

4.  At trial, Counsel for the Plaintiff Ms Kwok fairly concedes that the HK$108,000 retained by PTFW on its behalf should be deducted from the principal sum and the Plaintiff only seeks to recover the principal sum of HK$1,692,000 and interest accrued on the sum.

5.  Mr Sit’s case is that he was induced into entering into the Loan Agreement by a Mr Yip, a Mr Shek who held themselves out as representatives of a company “Fung Ming Global Int’l Limited” (“Fung Ming”) and who acted in collusion with the Plaintiff. Mr Sit alleged that of the loan proceeds received from the Plaintiff on 16 August 2018, he was induced into paying HK$1,442,000 to Mr Shek on the same day.  By way of counterclaim, Mr Sit seeks:-

(1)  a declaration that the Loan Agreement and the Second Legal Charge are unenforceable on the basis that the effective interest rate exceeds 60% per annum, in contravention to sections 2, 24(1)-(2), 27 and 29(10) of the MLO; or

(2)  in the alternative, set-off of the HK$1,442,000 paid to Mr Shek pursuant to section 27(4) of the MLO.

6.  Although not expressly pleaded in Mr Sit’s Defence and Counterclaim, it was indicated in the opening submissions of Mr Cheng (Counsel for Mr Sit) that insofar as necessary, Mr Sit also seeks to rely on section 25 of the MLO to reopen the transaction on the basis that the transaction is extortionate.

7.  As it has transpired, methods which were allegedly designed to expedite payment of loan proceeds to those acting in collusion with the Plaintiff, ie the Split-Cheque Arrangement and the release of funds from PTFW’s BEA account[1], became the subject of much contention at trial.

B.   THE PLAINTIFF’S EVIDENCE

8.  The Plaintiff called three witnesses at trial:-

(1)  Mr Chang Siu Cheong (“Mr Chang”), the sole director of the Plaintiff who approved Mr Sit’s loan application;

(2)  Mr Chan Chun Wang (“Mr Chan”), who was employed by the Plaintiff at the material time, and who liaised with Mr Sit and was present at PTFW’s office on 16 August 2018 when the Loan Agreement and the Second Legal Charge were executed; and

(3)  Ms Lai Bik Shan (“Ms Lai”), a clerk who was employed by PTFW at the material time.  She prepared some of the documents signed by Mr Sit and was present at PTFW’s office on 16 August 2018.

9.  In assessing the credibility of a witness, the court normally attaches much weight to undisputed contemporaneous documents, inherent probabilities, motive or the lack of it, logic and common sense (see Hui Cheung Fai v Daiwa Development Ltd, unrep, HCA 1734/2009, at §§76-83)

B1.    Mr Chang’s evidence

10.  Mr Chang’s evidence in chief is in summary as follows:-

(1)  The Plaintiff has an online platform for prospective borrowers to submit loan applications.  He was generally responsible for the pre-approval of such applications, and his practice is usually that he would approve mortgage applications where the aggregate mortgage ratio is below 80%.

(2)  On 9 August 2018 at around 8:34 pm, he received an online mortgage application from a “Sit Ka Man” for a loan of HK$2 million. Copies of documents submitted along the application including Mr Sit’s Hong Kong Identity Card, the UA Loan documents dated 22 March 2018, the PrimeCredit Loan documents dated 9 November 2017, a statement of his HSBC mortgage account dated 24 December 2016 and HSBC transaction records from 29 June 2018 to 6 August 2018.

(3)  After considering the documents, he pre-approved a mortgage loan of HK$1,800,000.  On 10 August 2018, he gave instructions to the Plaintiff’s staff to prepare loan documents and remit funds to PTFW. The Plaintiff remitted HK$2 million to PTFW’s account on 10 August 2018 and gave instructions to PTFW that HK$1.8 million was for the loan to Mr Sit to be secured by the Property.[2]

(4)  On around 13 August 2018, he instructed Mr Chan to liaise with PTFW and Mr Sit to arrange the execution of the loan documents and the release of loan proceeds.  He specifically asked Mr Chan to advise Mr Sit to use some of the loan proceeds to repay the UA Loan first.

(5)  Thereafter he was not directly involved in the dealings with Mr Sit.  As to the Split-Cheque Arrangement, he said he was aware that PTFW had similar practices before and believed that would have been pursuant to the instructions of the borrowers as the Plaintiff never gave such instructions to PTFW.

(6)  He denies having any knowledge of or dealings with Mr Yip, Mr Shek or Fung Ming.

11.  During cross examination, Mr Chang stated:-

(1)  The Plaintiff only had a BEA account and for the purpose of expediency and saving costs had always transferred funds to PTFW’s BEA account.

(2)  Other than the online platform, the Plaintiff also had business sources from registered intermediaries.  However, when a list of the Plaintiff’s registered intermediaries[3] was shown to him, Mr Chang said he did not know any of the intermediaries would have been registered at the time of the Loan Agreement as they were all introduced by another shareholder of the Plaintiff, a Madam Leung.

(3)  When asked why he approved the loan application even though he was well aware that the combined amount of the monthly payment after taking account of the HSBC mortgage, the PrimeCredit Loan and the Loan Agreement would be around HK$48,000, which well exceeded Mr Sit’s monthly income of around HK$36,000, Mr Chang said it did not concern him since Mr Sit’s income was sufficient to cover the monthly payment to the Plaintiff and the loan was secured by the Property.

12.  I note that Mr Chang appeared to be rather defensive at times in particular when he was questioned about the Plaintiff’s dealings with intermediaries and the preparation of the loan documents.  In his attempt to avoid Counsel’s questions regarding the Plaintiff’s practice in the preparation of loan documents, Mr Chang said the Plaintiff used several law firms in these loan transactions, but he was unable to name any one of them other than PTFW.  His evidence in this regard is also contradicted by Mr Chan who unequivocally confirmed that during his employment with the Plaintiff he only ever worked with PTFW.  This is not a material matter per se in the context of this case but it does call into question Mr Chang’s credibility as a witness.

B2.    Mr Chan’s evidence

13.  Mr Chan was the Plaintiff’s employee at the time until he left the Plaintiff’s employment in January 2020.  He was responsible for contacting and meeting clients and arranging for the execution of loan documents with clients.  He would also liaise with Ms Lai of PTFW to arrange for meetings with clients at PTFW’s office but he was not responsible for the preparation of loan documents, which were prepared by the two administrative staff of the Plaintiff.

14.  Mr Chan said he received instructions from Mr Chang that the Plaintiff had received Mr Sit’s online application and pre-approved HK$1,800,000 loan to the defendant with mortgage.  Therefore he called Mr Sit on 14 August 2018 on behalf of the Plaintiff.  According to Mr Chan’s witness statement, in that telephone conversation:-

(1)  After identifying himself as the Plaintiff’s representative, Mr Chan verified Mr Sit’s identity according to the Plaintiff’s internal guideline, and the information submitted to the Plaintiff online, including the amount of the loan applied for and the Property;

(2)  He informed Mr Sit of the main terms of the pre-approved loan, including the loan amount, the interest rate and the amount of the monthly instalment, and suggested that Mr Sit use part of the loan proceeds to repay the UA Loan.

(3)  He asked Mr Sit how he came to know about the Plaintiff and Mr Sit told him that he learned about the Plaintiff online.

15.  During cross examination, Mr Chan confirmed that this was the very first time he ever contacted Mr Sit on behalf of the Plaintiff.  According to Mr Chan’s telephone record, this conversation with Mr Sit on 14 August 2018 lasted for no more than one minute.  It was put to him on behalf of Mr Sit that Mr Chan did not talk Mr Sit through all those matters as he alleged, as Mr Chan could not have managed to go through all those matters within one minute.  There is force in this observation.  Mr Chan maintained that he should have gone through those matters with Mr Sit as these were mandated under the Plaintiff’s internal guideline.  However, he acknowledged that during his employment with the Plaintiff he had many calls with prospective borrowers routinely and could not possibly recall every detail of these calls.

16.  In any event, as the evidence unfolds, it transpired that the accuracy of Mr Chan’s recollection of the call is not so material as the date of the call, which is not in question.

17.  In cross examination, Mr Chan confirmed that on 15 August 2018:-

(1)  He received some loan documents prepared by his colleagues via email, and on the same day liaised with Ms Lai and Mr Sit and made arrangement with them to confirm the meeting with Mr Sit on 16 August 2018;

(2)  This was the first time he contacted Ms Lai about this matter and he asked her to prepare the mortgage documents and informed her that of the loan proceeds, HK$108,000 would be retained as upfront interest payment, HK$250,000 would be retained to discharge the UA Loan and HK$1,442,000 would be released to Mr Sit.  However, he did not give Ms Lai any instructions regarding the Split-Cheque Arrangement.

18.  On 16 August 2018, Mr Chan met with Mr Sit and talked him through a number of documents.  The meeting lasted for 20-30 minutes but only part of the process (around 7 minutes) was recorded on tape.  According to Mr Chan, this was done pursuant to the Plaintiff’s internal guideline which emphasised the need to ensure that no intermediary was involved in loan transactions.  It appears from the video recording that after Mr Chan read out the relevant parts of a confirmation form and asked Mr Sit to confirm that no intermediary was involved in the arrangement/obtaining of the loan and no one requested him to make any payment from the proceeds of the loan, Mr Sit signed the confirmation form.

19.  When asked what he would have done if a borrower told him in the process that an intermediary was involved, Mr Chan said that according to the Plaintiff’s guideline he would stop the process and report to Mr Chang immediately.  However, he said during his time with the Plaintiff, he had never come across such a situation.

20.  There was some confusion on Mr Chan’s part when he was asked to confirm whether he had seen certain documents setting out distribution of the loan proceeds.  However, he was very clear that he did not give Ms Lai any instructions on the Split-Cheque Arrangement; he said it was Ms Lai who informed him of the Split-Cheque Arrangement and he accordingly informed Mr Sit of this in the unrecorded part of the meeting. Mr Chan said he recalled that PTFW started the practice of splitting cheques at some time before Mr Sit’s case but he was not sure why PTFW adopted this practice.

21.  I find Mr Chan to be a generally forthcoming and honest witness.  Although he did not address the Split-Cheque Arrangement in the witness statement, his answer in the witness box as to his knowledge of this matter was spontaneous and direct.  His answer was also consistent with Ms Lai’s evidence.  It is understandable that his recollection of the details may not be entirely accurate due to the passage of time, but he was mostly quick to accept his mistakes when directed to a relevant contemporaneous document and I find that the material aspects of his evidence reliable.

B3.    Ms Lai’s evidence

22.  Ms Lai was a clerk of PTFW from May 2016 to April 2019 and she handled loan transactions for money lenders who were PTFW’s clients including the Plaintiff.

23.  In her witness statement, Ms Lai said she received phone calls from Mr Chan on 15 August 2018 to arrange for a meeting with Mr Sit in PTFW on 16 August 2018 and gave her instructions to prepare legal documents and cheques the next day.  During cross examination, Ms Lai’s attention was drawn to a note dated 10 August 2018 issued by PTFW’s account department confirming that HK$1.8 million was received from the Plaintiff to be used as Mr Sit’s mortgage money to be secured by the Property.  She then confirmed that in that case she should have received instructions from the Plaintiff about Mr Sit’s case at least with respect to the Property and the loan amount on 10 August 2018.

24.  In her witness statement, Ms Lai said that PTFW usually released loan proceeds from its BEA account as the Plaintiff usually deposited the loan proceeds into PTFW’s account and PTFW therefore released funds from the BEA account directly in order to reduce bank charges.

25.  As to the Split-Cheque Arrangement:-

(1)  She confirmed that this was done pursuant to general instructions of her late principal Mr Wong Tak Fu (a partner of PTFW who has since passed away), who told her that where the loan amount exceeded HK$1,000,000 she should split the amount into a cash cheque and a cross cheque.  She understood that Mr Wong wanted to protect the borrowers from being deceived into passing the loan proceeds to fraudsters.

(2)  It was her who prepared the letter setting out the Split-Cheque Arrangement for Mr Sit to sign, while the letter setting out the three-way division of the loan proceeds (ie HK$108,000, HK$250,000 for the UA Loan, and the balance of HK$1,442,000 but no mention of the Split-Cheque Arrangement) was prepared by the Plaintiff’s administrative staff (but not Mr Chan).

26.  Mr Cheng submits that Ms Lai’s evidence is not reliable, and the letter setting out the Split-Cheque Arrangement is a self-serving document, on the basis that it was completely unnecessary given that the Plaintiff already prepared the letter setting out the three-way division of the loan proceed.

27.  I am not persuaded that it is sound to draw such an inference because it could equally be said that the fact that Ms Lai prepared the letter setting out the Split-Cheque Arrangement on top of the Plaintiff’s letter setting out the three-way division of the loan proceeds tends to corroborate her evidence that the Split-Cheque Arrangement was initiated on PTFW’s end and rather than from the Plaintiff.

28.  Overall, I find Ms Lai to be an honest and forthcoming witness.  Her evidence with respect to the Split-Cheque Arrangement is also consistent with Mr Chan’s evidence.  I accept her evidence in this regard.

C.   THE DEFENDANT’S EVIDENCE

29.  Mr Sit previously worked as a foreman and started his own refurbishment business towards the end of 2016; it was not profitable and was closed down in February 2018.  By that time he owed around HK$700,000 to his contractors and suppliers.  After closing down his business, he worked as a supervisor.  Although figures varying from HK$30,000 to HK$37,692 were given as Mr Sit’s monthly income in 2018 in Mr Sit’s witness statement and various documentary evidence (including payroll receipts issued by his employer and his HSBC transaction record which were received by the Plaintiff online), the difference is not material for the present purpose.

30.  Mr Sit said he applied the proceeds from the PrimeCredit Loan and the UA Loan to settle debts to his contractors and suppliers, following which the outstanding sum was around HK$300,000 to HK$400,000 in August 2018.  He was keen to clear all his debts to his contractors and suppliers.

31.  According to Mr Sit’s witness statement:-

(1)  On 1 August 2018, he received a call from one Mr Yip, who represented himself as someone who used to work at HSBC and handled Mr Sit’s mortgage with HSBC.  Mr Sit recalled that there was indeed a Mr Yip who handled his mortgage at HSBC.  He told Mr Yip about his need for around HK$700,000 to clear his debt.  Following further discussions over the phone and via Whatsapp, Mr Yip made an appointment with Mr Sit to meet at Fung Ming’s office in the evening of 3 August 2018.

(2)  When Mr Sit arrived at Fung Ming’s office in the evening of 3 August 2018, he was met by a Mr Shek who held himself out as Mr Yip’s superior.  During the meeting, Mr Shek advised Mr Sit to apply for a revolving loan facility with either BEA or the Industrial and Commercial Bank of China (“ICBC”). Mr Shek said for that purpose, Mr Sit should apply for a second mortgage and use the proceeds to clear the UA Loan and boost his credit rating.  Mr Sit agreed to Mr Shek’s suggestion.

(3)  After the meeting, Mr Yip called and sent Whatsapp messages to Mr Sit and requested him to provide supporting documents.  From 7-10 August 2018, Mr Sit provided various documents including his HSBC transaction record for the period of 29 June 2018 to 6 August 2018 (provided on 9 August 2018), which was among the documents received by the Plaintiff online on 9 August 2018 (see paragraph 10(2) above).

(4)  On or before 10 August 2018, Mr Yip told Mr Sit over the phone that:

(a)  The Plaintiff had approved his application for a second mortgage.  The application was smooth because the Plaintiff was a subsidiary of Fung Ming.

(b)  Arrangements had been made for Mr Sit to sign the relevant documents on 16 August 2018 at noon in the office of PTFW in Central.

(c)  Mr Sit should open a bank account with BEA if he did not have one to facilitate his repayment of the loan to the Plaintiff.

(5)  Thereafter, Mr Sit applied for and was granted leave from his employer for 16 August 2018.

32.  Pausing here, I note that this part of Mr Sit’s witness statement is largely consistent with his evidence at trial, save that in cross examination, he said he could not recall whether he learned about the address of PTFW from Mr Yip over the phone, or whether he learned about it from Mr Chan’s Whatsapp message.  Save for this detail, Mr Sit’s evidence is largely consistent with the contemporaneous evidence:-

(1)  The online application submitted to the Plaintiff on 9 August 2018 contains inter alia Mr Sit’s HSBC transaction record for the period of 29 June 2018 to 6 August 2018, which was provided by Mr Sit to Mr Yip on 9 August 2018.

(2)  As evidenced by the note issued by PTFW’s account department and confirmed by Mr Chang and Ms Lai at trial, on 10 August 2018, the Plaintiff gave instructions to PTFW that it would grant a loan of HK$1,800,000 to Mr Sit.

(3)  Incidentally, it was also on 10 August 2018 that Mr Yip sent a Whatsapp message to Mr Sit stating inter alia that there was news from the “bank” (“銀行[已]經有消息”).  In this regard, Ms Kwok submitted that the “bank” referred to here may not be the Plaintiff and may be the bank from which Mr Sit intended to apply for the revolving loan facility as suggested by Mr Shek.  However, in the Whatsapp messages of the previous days (such as those on 6 and 7 August 2018 in which Mr Yip requested Mr Sit to provide supporting documents), Mr Yip was always referring to those as documents required by the “bank”.  The discussion of the revolving loan facility only came up in the Whatsapp messages in September 2018 – as was consistent with Mr Sit’s evidence that Mr Shek’s advice was to obtain a loan secured by a second mortgage and boost Mr Sit’s credit rating before applying for the revolving facility from BEA or ICBC.  In these circumstances, the more logical and reasonable interpretation is that Mr Yip was saying that there was news from the Plaintiff regarding the loan application.

(4)  In Mr Sit’s Whatsapp message to Mr Yip on 13 August 2018, Mr Sit stated that he had obtained leave for 16 August.

(5)  In Mr Sit’s Whatsapp message to Mr Yip on 15 August 2018, Mr Sit asked whether he should go to BEA to open an account and then go to PTFW on 16 August 2018.

33.  As to his contact with Mr Chan, Mr Sit said he did not recall receiving the call on 14 August 2018 from Mr Chan at all.  This is perhaps not surprising, since according to Mr Chan’s telephone record, the conversation lasted for no more than 1 minute.  But Mr Sit confirmed that he received Mr Chan’s Whatsapp message on 15 August 2018 informing him of the meeting on 16 August 2018 at PTFW.

34.  Mr Sit’s account of the events on 16 August 2018 in his witness statement is in summary as follows:-

(1)  Mr Sit went to open a BEA account at around 11am in the morning.  As such he liaised with Mr Chan to change the meeting to 1pm that day.

(2)  At 12:30pm, Mr Sit met with Mr Shek who told Mr Sit that he would not accompany Mr Sit to PTFW’s office and reminded Mr Sit not to mention that Mr Sit was referred by Fung Ming or Mr Shek and should instead mention that Mr Sit learned about the Plaintiff online.

(3)  Mr Sit went to PTFW’s office alone and was met by Mr Chan. Upon Mr Chan’s request, Mr Sit filled out a loan application form.  Mr Chan explained some loan documents to Mr Sit, asked him to sign them and recorded the process.

(4)  After signing the documents, Mr Sit received cheques from a female staff of PTFW all of which issued from PTFW’s BEA account, including the HK$721,000 cash cheque and the HK$721,000 cross cheque.

(5)  After leaving PTFW’s office, Mr Sit called Mr Shek and was instructed to withdraw cash of both cheques from Mr Sit’s newly opened BEA account which Mr Shek said would be used to repay the Plaintiff immediately.  Mr Sit followed Mr Shek’s instructions and passed the HK$1,442,000 cash to Mr Shek, believing that Mr Shek would arrange for repayment of that sum to the Plaintiff, and follow up on the plan to apply for a revolving facility with BEA or ICBC.  Mr Shek did not give him any receipt for the money. In this regard, although there is no other direct evidence of Mr Sit’s payment to Mr Shek, I note that Mr Sit’s account is consistent with and corroborated by his Whatsapp message on 21 November 2018 to Mr Chan in which Mr Sit requested for a “settle letter” from the Plaintiff, apparently under the impression that repayment to the Plaintiff had been (or should have been) arranged.

35.  As recorded on tape, Mr Chan asked Mr Sit to confirm inter alia that (1) it was an online application, (2) no affiliates, staff or agents of the Plaintiff were involved or would receive any commission in the loan, (3) no intermediary was involved or charged any fees, and (4) no individual/institution asked Mr Sit to pass the loan proceeds or any part of it to them. Mr Sit signed the relevant confirmation as requested.

36.  When Mr Sit was asked why he signed the confirmation despite knowing the involvement of Fung Ming, Mr Shek and Mr Yip, he said he simply did not pay attention to what Mr Chan said at all or read the documents in detail even though he knew that as a result of the Second Legal Charge he could lose the Property if he defaulted.  He said this is because in his mind the bulk of the loan would be repaid immediately and it was just an intermediate step towards the revolving facility application he had discussed with Mr Yip and Mr Shek.

37.  Mr Sit confirmed that Ms Lai did inform him of the Split-Cheque Arrangement, which he accepted without question.  As to whether he received copies of the loan documents, Mr Sit evidence in the witness statement was that he never did but he admitted during cross examination that he could not remember whether he received them or not.

38.  Mr Sit continued to be in touch with Mr Yip who requested him to provide various documents for the purpose of the revolving facility, and only realised that he had been scammed when he was directed by Mr Yip to visit a manager at an ICBC branch in November 2018 but was told that there was no such person upon visiting the branch. Since then he was unable to contact Mr Yip or Mr Shek.

39.  Ms Kwok submits that Mr Sit’s evidence is not credible for a number of reasons:-

(1)  Mr Sit’s blind trust in strangers such as Mr Yip and Mr Shek defies common sense.  Mr Sit admitted to never taking any steps to verify whether the Mr Yip who approached him in August 2018 was in fact the Mr Yip who handled his mortgage at HSBC; he did not question Mr Shek at all when Mr Shek asked him not to mention Mr Shek or Fung Ming at the meeting at PTFW’s office which is odd because according to Mr Shek the Plaintiff was a subsidiary of Fung Ming; he also handed the HK$1,442,000 over to Mr Shek trusting him to arrange the repayment of the sum to the Plaintiff without any suspicion or even asking for a receipt.

(2)  Mr Sit never questioned the logic of Mr Shek’s proposal that Mr Sit should have to obtain a second mortgage to discharge one (but not both) of his personal loans as a pre-condition of his revolving loan facility application, nor did he consider any other alternative solutions to his financial problem.  It is remarkable that he paid little attention to the terms of the Plaintiff’s loan or Mr Chan’s explanations before signing even though he was aware that the consequence of any default could result in his loss of the Property.

(3)  Mr Sit concealed the involvement of Fung Ming from Mr Chan at the meeting on 16 August 2018, nor did he mention that to Mr Chan when Mr Chan subsequently reminded him to repay the loan on 7 November 2018 or after he realised that he had been scammed.  Mr Sit said he did not make a report to the police because he was concerned that the fraudsters might have triad connections.

(4)  Although Mr Sit denies submitting the online application to the Plaintiff on 9 August 2018 himself, Mr Sit admitted that he never provided some of the documents received by the Plaintiff online (such as documents relating to the UA Loan/PrimeCredit Loan, see paragraph 10(2) above) to Mr Yip.  Ms Kwok submits that this could only mean that Mr Sit himself submitted the online application.  Mr Sit also gave inconsistent evidence as to whether he received copies of the loan documents on 16 August 2018. 

40.  I also find Mr Sit’s trust in Mr Yip and Mr Shek illogical and with respect, his lack of judgment most unfortunate.  However, Mr Sit strikes me as an unsophisticated and somewhat naïve individual.  He gave evidence in a forthcoming manner.  While he was not always accurate in his recollection of details, he was generally quick to admit to his mistakes or concede that his recollection was not clear when he was confronted with contemporaneous evidence without any attempt to make up excuses.  He also did not try to spin his evidence to his advantage: an example was when he was asked to describe the floor on which both Fung Ming and a registered agent of the Plaintiff was situated, he simply admitted that he did not pay any attention to the offices on that floor without any exaggeration. More importantly, as I observed above, material aspects of Mr Sit’s account are largely consistent with contemporaneous evidence.

41.  As to documents relating to the UA Loan/PrimeCredit Loan which were submitted to the Plaintiff online on 9 August 2018, Mr Cheng submits that these are older documents which may have been obtained by Mr Yip/Mr Shek via channels other than Mr Sit.  The only up-to-date document submitted to the Plaintiff online on 9 August 2018 was Mr Sit’s HSBC transaction record from 29 June 2018 to 6 August 2018 which he provided to Mr Yip by Whatsapp on the same date.

42.  Further, in a WhatsApp message sent by Mr Yip to Mr Sit on 24 September 2018, Mr Yip seemed to be under the impression that the amount of the loan was HK$2,000,000 rather than HK$1,800,000 which was the amount eventually approved by the Plaintiff.  It is conceivable that Mr Yip had that impression because he had a hand in or was aware of the online application which asked for HK$2,000,000 instead of HK$1,800,000.

43.  There is no evidence before me to conclude one way or another the source of documents relating to the UA Loan/PrimeCredit Loan which were submitted to the Plaintiff online on 9 August 2018.

44.  However, the material question is not who submitted the online application but whether Mr Sit approached the Plaintiff on his own volition via the online application or whether the online application was a step choreographed by Mr Yip/Mr Shek/Fung Ming in their plan.  The fact that Mr Sit continued to follow Mr Yip’s instructions and send further supporting documents to Mr Yip (and not directly to the Plaintiff) subsequent to the online application suggests that it is the later.

45.  Regardless of who submitted the online application, the overall picture as reflected by the available evidence (in particular the Whatsapp messages between Mr Sit and Mr Yip, the authenticity of which is not disputed by Ms Kwok) shows that Mr Sit was following Mr Yip’s instructions faithfully almost every step of the way.  I do not consider this particularly surprising, having observed Mr Sit giving evidence in person and finding him to be unsophisticated and somewhat naïve.  Mr Sit’s concealment of Fung Ming’s involvement from the Plaintiff is merely the evidence of his blind following of Mr Yip and Mr Shek’s instructions rather than any deliberate deception on his part. I find Mr Sit to be an honest witness and accept material aspects of his evidence.

46.  As further discussed in paragraph 54 below, when Mr Sit’s evidence, the Whatsapp messages and the other contemporaneous documentary evidence are considered as a whole, the overall picture is that Mr Sit’s actions and the Plaintiff’s processing of the loan are highly in sync with the matters discussed in the Whatsapp messages between Mr Yip and Mr Sit, even before 14 August 2018 when Mr Chan made the first contact with Mr Sit on behalf of the Plaintiff.

D.   WHETEHR SECTIONS 27 & 29 ARE ENGAGED

D1.    Applicable principles

47.  The relevant part of section 27(3) of the MLO reads as follows:-

“… 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 or on 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”. (emphasis added)

48.  Section 29(10) provides as follows:-

“Any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender who charges, recovers or receives any sum as for or on account of any costs, charges or expenses (other than stamp duties or similar charges) referred to in section 27(3) or demands or receives 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 commits an offence.”

49.  The legal principles in relation to collusion are trite.  In summary:-

(1)  “Collusion” under sections 27(3) - (4) of the MLO would need to be construed in its own statutory context with its objective and intent in mind. One key purpose of MLO is to protect the borrower from having to borrow money from others at excessive or extortionate interest rates, and the purpose of section 27(3)-(4) is chiefly to prevent the statutory protection afforded to the borrower under the MLO being stripped away or otherwise compromised by not only the money lender but also by other “related persons” in receiving charges etc from the borrower. (see Ever-Long Finance Ltd v Yeung Wah Leung[2017] 1 HKLRD 500 §§86-88)

(2)  “Collusion” means the parties were acting in concert and playing the same game.  The court is entitled to rely on overt acts of the parties involved and established facts to draw inferences in order to make a finding of collusion. (Skyline Credit Limited v Leung Hing Chung[2019] HKCFI 169 §§36-40; see also HKSAR v Wong Kwok Wai (2013) HKCFAR 191at §§6-8, 11);

(3)  “Collusion” in this context is a wider concept than “conspiracy”. 

(a)  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;

(b)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.

(c)  It is broad enough to cover co-operation between parties to deceive or otherwise to do harm to others.

(Ever-Long Finance Ltd v Yeung Wah Leung [2017] 1 HKLRD 500 §§90-93, Gain Wealth Global Credit & Investment Limited v Chan Suk Fong [2020] 4 HKLRD 831at §49)

(4)  By way of example, collusion was established where the Court found some tacit understanding and co-operation between the lender and the intermediary with a view to facilitating the conclusion of the loan transaction against the borrower’s interest and the payment of a fee to the intermediary in E-Way (Hong Kong) Property Credit Limited v Fung Wing Tim [2019]HKDC 39 (at §75).

50.  As to the burden and standard of proof of collusion, whilst the standard of proof remains the balance of probabilities, when assessing the probabilities, the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities.  (China Yinsheng Finance Limited v Wong Ping Shing [2020] HKCFI 3072 at §30, citing §69 of Chun Sang Plastics Company Limited v Y. T. Cheng (Ching Tai) Limited & Ors [2011] 4 HKLRD 74.

51.  In Chan Suk Fong, Kwan JA held at §35 that in deciding whether the defrauded monies would come within “costs, charges or expenses” or “remuneration or reward” of the plaintiff’s loan:-

(1)  The Court should consider the true nature or substance of the payments, and not with regard to the falsehood under which the borrower or intending borrower was labouring under;

(2)  In charging the borrower and receiving money from her, it can be fairly said that the person acting in collusion with the lender was to receive “remuneration or reward” in obtaining the loan for the borrower or that the payments were the “costs” for obtaining the loan;

(3)  For sections 27(3) and 29(10) to be engaged, it is not necessary to find that the lender was somehow involved in the fraud pertaining to the payments to the fraudster, and the object of the lender’s collusion as regards the defrauded monies is irrelevant.

D2.    Whether there was collusion

52.  Mr Cheng submits that the inference of collusion between the Plaintiff and Mr Yip/Mr Shek/Fung Ming can be drawn from the following circumstances:-

(1)  The Plaintiff’s case is that it only contacted Mr Sit for the first time on 14 August 2018, yet as early as 13 August 2018 Mr Sit already informed Mr Yip that Mr Sit was already granted leave on 16 August 2018.  In such circumstances, the only possible inference was that Mr Yip had informed Mr Sit of the date of the meeting on 16 August 2018 before Mr Chan informed Mr Sit of such on 15 August 2018.

(2)  Mr Sit was asked by Mr Yip to open a bank account with BEA.  This must be because Mr Yip had insider knowledge that PTFW used its BEA account to release funds, and Mr Sit’s opening of a BEA account would facilitate the withdrawal of the loan proceeds on the date of the drawdown.

(3)  The Plaintiff’s approval of Mr Sit’s loan application was casual and did not seem to be concerned about Mr Sit’s ability to repay.  It preapproved the loan based on very limited supporting documents, did not take steps to verify the supporting documents, and was not concerned that Mr Sit’s monthly earnings of HK$36,000-HK$37,000 were insufficient to cover monthly payments to the Plaintiff and the other creditors.

(4)  It is inherently improbable that PTFW implemented the Split-Cheque Arrangement on its own volition.  The Plaintiff must have given instructions in that regard with a view to facilitating the fraudsters to withdraw the loan proceeds on the same date.

(5)  The various confirmations Mr Sit was asked to sign were self-serving documents designed to conceal the involvement of intermediaries.

53.  Collusion is of course a serious allegation.  I bear in mind the principles set out in paragraphs 49-50 above and that such an inference should only be drawn where it is justified by the primary facts, and set out my analysis of the facts and evidence below.

54.  First, as I observed at paragraph 46 above, one notable feature is that the Plaintiff’s processing of the loan appears to be highly in sync with the matters discussed in the Whatsapp messages between Mr Yip and Mr Sit even before the Plaintiff’s first contact with Mr Sit on 14 August 2018.  In particular, the following matters are inexplicable unless Mr Yip/Mr Shek/Fung Ming’s camp had direct communication with the Plaintiff:-

(1)  The Plaintiff’s own witnesses confirmed that the Plaintiff approved the mortgage loan of HK$1,800,000 and gave instructions to PTFW on 10 August 2018.  On the same day, Mr Yip informed Mr Sit in Whatsapp that there was news from the “bank”.  As discussed at paragraph 32(3) above, I believe the most logical and reasonable interpretation is that Mr Yip was referring to the fact that the Plaintiff approved the loan.  This is consistent with Mr Sit’s evidence that Mr Yip told him that the Plaintiff approved the loan on or before 10 August 2018.

(2)  Mr Chan was very clear that his first ever contact with Mr Sit was the telephone call on 14 August 2018, yet on 13 August 2018 Mr Sit already told Mr Yip in Whatsapp Mr Sit already applied for and was granted leave on 16 August 2018.  Ms Kwok submits that Mr Sit was talking about a possible but not confirmed date of the meeting. Indeed the meeting date may very well have been tentative at that stage, since according to Mr Chan and Ms Lai’s evidence, the meeting date was only confirmed on 15 August 2018. However, the certainty of the meeting date is beside the point.  What is clear is that Mr Sit was given information about a meeting date which was contemplated by the Plaintiff before the Plaintiff’s representative Mr Chan made any contact with him.

55.  Second, although I accept the material aspects of Mr Chan and Ms Lai’s evidence, their evidence provides no answer to the matters set out at paragraph 54 above.  It is entirely conceivable that Mr Chan and Ms Lai had no knowledge of the collusion, and the collusion stemmed from somewhere else within the Plaintiff. Viewed in this context, the various confirmations Mr Chan had Mr Sit sign are no more than self-serving documents and a façade designed to conceal the involvement of intermediaries.

56.  Third, although there is no direct evidence as to the Plaintiff’s knowledge of the precise way in which Mr Yip, Mr Shek/Fung Ming were to extract a financial reward, given that the Plaintiff was aware that intermediaries were involved, it can be safely inferred that the Plaintiff must have expected that the intermediaries would derive a financial award in some way even though it might not know precisely how. Since I accept Mr Chan and Ms Lai’s evidence that the Split-Cheque Arrangement was initiated by PTFW and not on the Plaintiff’s instructions, I do not take into account the Split-Cheque Arrangement in the finding of collusion.

57.  Fourth, there is no question that the Loan Agreement and the Second Legal Charge were to Mr Sit’s detriment. His monthly earnings were insufficient to cover monthly payments to the Plaintiff and the other creditors, which put him at considerable risk of defaulting under the Loan Agreement and losing the Property. This would have been plain to the Plaintiff and Mr Yip/Mr Shek/Fung Ming.

58.  Having said that, I do not think the Plaintiff’s casual attitude in the approval of the loan and the disregard for Mr Sit’s ability to repay can, without more, be regarded as evidence that the Plaintiff expected to recoup a substantial part of the loan proceeds from the financial award Mr Yip/Mr Shek/Fung Ming extracted from the Plaintiff. I do not think it is commercially unreasonable for the Plaintiff as a money lender to take the view that its interest would be sufficiently secured by the Second Legal Charge. I also discuss at paragraphs 60-61 below the evidence which tends to show that the extent and scope of the collusion was somewhat limited. However, for the purpose of finding collusion under section 27(3) and (4) it is unnecessary for me to find that the collusion went that far or was that specific.

59.  Fifth, as to Mr Yip’s request for Mr Sit to open a BEA account, I agree with Ms Kwok that this of and in itself is not necessarily indicative of insider knowledge on Mr Yip’s part, since anyone who had past dealings with the Plaintiff might learn that the Plaintiff usually released loan proceeds via PTFW’s BEA account.  I observe that this is consistent with Mr Sit’s case that Mr Yip had insider knowledge, and I put it no higher than that.

60.  Sixth, Ms Kwok relies on the WhatsApp message sent by Mr Yip to Mr Sit on 24 September 2018 where Mr Yip seemed to be under the impression that the amount of the loan was HK$2,000,000 rather than HK$1,800,000.  Ms Kwok submits that this contradicts the allegation that Mr Yip and the Plaintiff were “playing the same game”.

61.  However, taking account of the evidence as a whole (in particular the matters set out at paragraph 54 above), this only shows that the extent and scope of the collusion is probably limited; it does not serve to negate the existence of the collusion.  After all, collusion in the context of sections 27(3) and (4) is a wider concept than conspiracy; there was no need to establish a prior agreement and some tacit understanding or cooperation may suffice.  (see Ever-Long Finance Ltd v Yeung Wah Lung [2017]1 HKLRD 500 and E-Way (Hong Kong) Property Credit Limited at §75)

62.  Ms Kwok’s other submissions rest largely on the credibility of Mr Sit’s evidence in particular his concealment of Mr Yip/Mr Shek/Fung Ming’s involvement from the Plaintiff, which I have dealt with at paragraphs 39-45 above.

63.  In these circumstances, the inferences of collusion are compelling. I find that there is on the balance of probabilities collusion between Mr Yip, Mr Shek/Fung Ming on the one hand and the Plaintiff on the other in that there was some tacit understanding and cooperation to induce Mr Sit into entering into the Loan Agreement and the Second Legal Charge to Mr Sit’s detriment and for Mr Yip, Mr Shek/Fung Ming to derive some financial reward.

D3.    Consequence of collusion

64.  For the purpose of ascertaining “remuneration or reward” received by persons acting in collusion with the Plaintiff in obtaining the loan for Mr Sit, it is not necessary to find that the Plaintiff was somehow involved in the fraud pertaining to the payments to the fraudsters, and the object of the Plaintiff’s collusion is irrelevant (Chan Suk Fong at §35).

65.  Having regard to the true nature or substance of the payments (and not with regard to the falsehood under which Mr Sit was labouring under), it is clear that the sum of HK$1,442,000 was charged by Mr Shek and his camp as financial reward in obtaining the loan transaction.  For this sum to constitute “remuneration or reward” under section 27(3) of the MLO, it is not necessary to find that the Plaintiff was somehow involved in the payment to Mr Shek and his camp.

66.  Accordingly, I find that the sum of HK$1,442,000 is recoverable from the Plaintiff under section 27(4) of the MLO and Mr Sit is entitled to set off this sum against the amount actually lent under the Loan Agreement.

E.   WHETHER INTEREST WAS EXCESSIVE

E1.    What is the principal

67.  Under section 2(1) of the MLO, “principal” in relation to a loan means “the amount actually lent”.

68.  In Chan Suk Fong at §§60-68, the Court found that only the upfront fee charged by the plaintiff and the proceeds of the cash cheque (but not the cross cheque) issued to the defendant should be deducted from the contractual sum of HK$1 million to arrive at “the amount actually lent”.  In coming to the conclusion that the proceeds of the cash cheque should be deducted, Kwan JA held at §66:-

“In respect of the amount of $100,000, it is not in dispute that the split cheques (a cash cheque of $100,000 and a crossed cheque marked “account payee only” of $113,000) issued by the plaintiff’s solicitors were not done on the defendant’s instructions. No one had told her why split cheques were issued, or why the cheques were split in those amounts. No evidence was adduced by the plaintiff to explain why a cash cheque in the said sum was issued in the absence of any request of the borrower. Nor did the plaintiff adduce evidence that this was done at its own initiative. Given that an intermediary was involved in the transaction and it must be expected that the intermediary would be remunerated out of the funds made available by the plaintiff, it seems to us a compelling inference can be drawn that the cash cheque was issued to facilitate payment of its proceeds to the intermediary at the earliest opportunity and it was not envisaged that such proceeds would go to the borrower, who was issued a separate cheque marked ‘account payee only’.” (emphasis added)

69.  I do not understand Kwan JA to be mean that where a cash cheque was used it must invariably be inferred that the lender expected an intermediary to be remunerated out of the proceeds of the cash cheque.  Mr Cheng accepts that, properly understood, Kwan JA was saying if it can be inferred from the evidence that a certain payment method was used by the lender to facilitate or expediate payment to the intermediary, such payment should be deducted from the principal.  Whether or not a certain sum (whether derived from a cash cheque or some other payment method) should be deducted from the principal must depend on the circumstances of each case.

70.  Mr Cheng draws support from §66 of Chan Suk Fong and argues that:-

(1)  All of the HK$1,442,000 should be deducted from the principal, as Mr Sit was induced into opening a BEA account to facilitate the withdrawal of funds from the cheques issued from PTFW’s BEA account to make payment to Mr Shek and his camp;

(2)  Alternatively, the HK$721,000 proceeds from the cash cheque should be deducted from the principal, as the cash cheque was used by the Plaintiff to facilitate payment of loan proceeds to Mr Shek and his camp at the earliest opportunity.

71.  I am unable to accept Mr Cheng’s submissions.  On the facts of this case:-

(1)  It was really Mr Sit’s opening of the BEA account which had the effect of facilitating the payment to Mr Shek on the same day of the drawdown.  As discussed above, I accept Mr Sit’s evidence that he opened the BEA account upon the request and persuasion of Mr Yip.  However, there is no evidence before me which allows me to infer that the Plaintiff was somehow involved in Mr Sit’s opening of the BEA account and thereby facilitating the payment of the HK$1,442,000 to Mr Shek.

(2)  Given my acceptance of Mr Chan and Ms Lai’s evidence that the Split-Cheque Arrangement was initiated by PTFW as per the late Mr Wong’s general instructions, there is no evidential basis for me to draw the inference that the Plaintiff caused the issuing of the cash cheque with a view to facilitating payment to Mr Shek and his camp.

(3)  A further distinction from the circumstances in Chan Suk Fong is the amount of the cash cheque in question.  In Chan Suk Fong, the amount of the cash cheque was HK$100,000 which was 10% of the face value of the loan, whereas the amount of the cash cheque in this case was HK$721,000 and more than 40% of the face value of the loan. It is reasonable to expect a lender to give a 10% reward to an intermediary.  Yet it makes little commercial sense for the Plaintiff to give a 40% reward to Mr Shek and his camp which well exceeded the interest the Plaintiff could expect to earn during the term of the Loan Agreement; this would only make sense if the Plaintiff expected to recoup a substantial share of that reward from Mr Shek and his camp, but the evidence before me does not support such a finding.

72.  In these circumstances, I do not think that there is sufficient basis to justify the deduction of HK$1,442,000 or HK$721,000 from the principal.  I therefore find that the principal should be HK$1,692,000 (ie HK$1,800,000 minus HK$108,000).

E2.    What is the interest

73.  Section 2(1) of the MLO provides that “interest” “does not include any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid 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”. (emphasis added)

74.  Even where the Court finds collusion between the lender and the intermediary and that a sum paid to an intermediary is caught by s.27(4) of the MLO on that basis, it does not automatically follow that the sum paid to the intermediary must be regarded as “interest” under s.2(1). (See Chan Suk Fong at §54; see also E-way (Hong Kong) Property Credit Ltd at §100)

75.  To qualify as “interest” under section 2(1), the sum must be paid or payable in consideration of or otherwise in respect of a loan, but there is no requirement that it must be paid to the lender or the lender’s agent:-

(1)  If the fraudsters could be regarded as agents of the plaintiff, the payments to the fraudsters could properly be considered to come within the definition of “interest”.(Chan Suk Fong at §43)

(2)  However, a finding of collusion between the plaintiff and the fraudsters does not necessarily mean that a party to the collusion should be legally liable for the fraudulent act of the other party, since “collusion” in the context of sections 27(3) and (4) is a wider concept than “conspiracy”. (Chan Suk Fong at §49; Ever-Long Finance Ltd at §§90 to 93)

(3)  See also E-way (Hong Kong) Property Credit Ltd at §§83 and 100, where it was held that although the available evidence was sufficient to establish collusion, it was not sufficient to establish an agency relationship between the lender and the fraudster.

(4)  Nevertheless, in the absence of an agency relationship between the lender and the intermediary, a payment to someone other than the lender or its agent may still qualify as interest if there is evidence to link the payment made by the borrower to the intermediary with the loan made by the lender.  See Chan Suk Fong at §55:

“In our view, to qualify as “interest” under section 2(1), the amount is not required to be paid or payable to the lender or its agent. It could be paid to someone else so long as it is ‘paid or payable in consideration of or otherwise in respect of a loan’. Where there is no evidence of any involvement of the lender regarding the monies defrauded by the intermediary and nothing to link the payment by the borrower with the loan made by the lender, that could be difficult to establish.” (emphasis added)

E2.1 Whether the defrauded monies constitute interest

76.  In the present case, Mr Cheng is not suggesting that the HK$1,442,000 or any part of it should be regarded as interest.  Indeed there is no evidence that the HK$1,442,000 or any part of it was paid or payable in consideration of or otherwise in respect of the loan:-

(1)  Although the available evidence is sufficient to establish collusion between the Plaintiff and Mr Shek’s camp in the inducement of Mr Sit into entering into the Loan Agreement, I do not think that it is sufficient to establish an agency relationship between the Plaintiff and Mr Shek’s camp;

(2)  There is also no evidence of any involvement of the Plaintiff regarding the HK$1,442,000 defrauded by Mr Shek’s camp, and nothing to link the payment of the HK$1,442,000 by Mr Sit with the loan made by the Plaintiff.  As I observed at paragraph 71 above, there is insufficient evidence before me to infer the Plaintiff’s involvement in procuring Mr Sit’s opening of the BEA account or the issuing of the cash cheque of HK$721,000.

77.  In the premises, neither the HK$1,442,000 nor the HK$721,000 derived from the cash cheque should be regarded as a sum which must be paid or payable in consideration of or otherwise in respect of a loan.  Consequently, neither sum qualifies as interest under section 2(1) of the MLO.

E2.2 How should the upfront payment of HK$108,000 be accounted for

78.  Initially, both parties’ closing submissions suggest that the effective interest should be HK$540,000 consisting of the contractual interest of HK$432,000 and HK$108,000 which was retained on behalf of the Plaintiff on the day of the drawdown.

79.  However, there is no dispute between the parties that the upfront payment of HK$108,000 was retained as interest payments for September to November 2018[4]. I therefore direct parties to file further submissions to explain why the contractual interest of HK$432,000 has not taken account of the HK$108,000 already, and why the effective interest should be HK$540,000 and not HK$432,000.

80.  Ms Kwok accepts that the effective interest should be HK$432,000 in her written submissions dated 5 August 2021.

81.  Mr Cheng relies on Skyline Credit, in which Deputy High Court Judge William Wong SC took into account the upfront payment of HK$49,680 in that case in addition to the contractual interest of the loan in dispute in calculating the effective interest. In his written submissions dated 5 August 2021, Mr Cheng (who was counsel for the Plaintiff in Skyline Credit) enclosed the defendant’s witness statement in Skyline Credit in support of his contention.

82.  I decline to take into account the said witness statement, for the following reasons:

(1)There is no application to admit the said witness statement, and even if there is, I am bound to dismiss such an application not least because I fail to see any relevance of the witness statement to this case and an application at this stage is in any event far too late and prejudicial to the Plaintiff which is deprived of any reasonable opportunity to respond.

(2)More importantly, I can only discern the reasoning and analysis of the learned Deputy High Court Judge based on the findings of fact he did make in the Skyline Credit judgment. I am in no position to read into or infer from the judgment findings of fact which he did not make based on a witness statement in that case. A fact which was not found the learned Deputy High Court Judge simply did not form the basis of his reasoning.

83.  Contrary to Mr Cheng’s submissions, I am unable to discern any finding in the Skyline Credit judgment by the learned Deputy High Court Judge that the upfront payment of HK$49,680 or any part of it formed part of the contractual interest of the loan in dispute in that case, or that it should be accounted for twice in the calculation of effective interest:

(1)The contractual interest of the loan was HK$41,400 monthly (see §3(1) therein). Interest for 3 months would have amounted to HK$124,200, and not HK$49,680.

(2)There is no finding that the HK$49,680 formed part of the contractual interest of the loan in dispute. Rather, it was purportedly charged in advance as the intended interest for a separate mortgage loan to be arranged by Worldwide Commercial Company Limited with Nanyang Commercial Bank subsequently which then never materialised. (see §§26-28 therein, in particular §27(3)) Therefore the HK$49,680 appears to be an amount paid in addition to the contractual interest.

(3)Mr Cheng submits that out of the upfront payment of HK$49,680, HK$41,400 was subsequently used to pay the first instalment of the monthly interest. Mr Cheng appears to suggest that this could be inferred from the fact that the learned Deputy High Court Judge found that the defendant failed to pay the second monthly instalment but there was no finding that he failed to pay the first monthly instalment. Be that as it may, with respect, I am unable to discern any finding by the learned Deputy High Court Judge that the first monthly instalment was paid out of the upfront payment of HK$49,680.

84.  It is clear to me that in Skyline Credit, the sum of HK$49,680 was accounted for once only in the calculation of effective interest.

85.  The other case which the parties rely on to suggest that the upfront payment of HK$108,000 should be accounted for twice in the calculation of interest is Chan Suk Fong. With respect, such reliance is misplaced. In that case, the upfront payment of HK$37,000 was characterized as an upfront fee/legal fee (see §19 therein), and appears to be an amount paid/payable in addition to the contractual interest. The upfront payment was therefore accounted for once only in the calculation of effective interest.

86.  I appreciate that confusion may arise in the calculation of effective interest with respect to upfront payments, but I am unable to discern any general principle from the authorities that an upfront payment must be accounted for in addition to the contractual interest, regardless of whether the contractual interest already takes account of such an upfront payment or not.Ultimately, the question is quite simply what is the amount in excess of principal which “has been or is to be paid or payable in consideration of or otherwise in respect of a loan” (see section 2 of the MLO, and Chan Suk Fong §§37, 53-55).

87.  In the present case, other than the contractual interest of HK$432,000 which already takes into account the upfront payment of HK$108,000, there is no evidence that any other sum was paid or payable in consideration of or otherwise in respect of the Loan.

88.  Accordingly, I find that only the contractual interest of HK$432,000 (and not HK$540,000) was paid or payable in consideration of or otherwise in respect of the Loan, and the effective interest is HK$432,000.  The effective interest rate is therefore approximately 25.53% (being (430,000/1,692,000)*100%).

E3.    Discretion under section 25 MLO?

89.  There is no particulars in the Defence and Counterclaim on which Mr Sit relies to show that the transaction was extortionate and should be reopened under section 25 of the MLO.  In the opening and closing submissions, Mr Cheng relies on (1) the effective interest rate which he submits was in excess of 48%, and (2) the fact that the Plaintiff knew full well that Mr Sit would be unable to repay the loan (see paragraph 52(3) above).  Other than these two points, I am unable to detect any factors referred to at section 25(4)-(6) of the MLO in Mr Cheng’s submissions.

90.  Given that I have found that the effective interest rate was 25.53%, the first point does not arise.  As to the second point, mere business immorality is insufficient to characterise the transaction as extortionate under section 25 of the MLO (see E-way (Hong Kong) Property Credit Ltd at §§102-103).

91.  I therefore do not see any basis to reopen the transaction under section 25 of the MLO.

F.   DISPOSITION

92.  I therefore hold that Mr Sit is entitled to set off HK$1,442,000 against the HK1,692,000 being the amount actually lent under the Loan Agreement pursuant to section 27(4) of the MLO.  Given my finding on the other matters, this does not otherwise affect the validity of the Loan Agreement or the Second Legal Charge.

93.  Mr Cheng confirmed that Mr Sit is willing and able to repay the sum of HK$250,000 together with interest at the contractual rate of 24% per annum to the Plaintiff in the event the Court finds him liable to do so.  Mr Sit as the sole owner of the Property retains the equity of redemption and is entitled to redeem the Second Legal Charge.  The equity of redemption remains exercisable even after default. (Ding Huirong v China Times Securities Limited [2020] HKCFI 376 at §§37-46, see also [2021] HKCA 419 at §§50-58; Hengshi International Investments Limited v Bayspring International Limited and Another, unreported, HCMP 1916/2015, 18 December 2015, §§26 and 62)

94.  In these circumstances, it is not appropriate to make an order for the delivery of vacant possession of the Property, even though Mr Sit may be technically in default of repayment of the principal sum of HK$250,000 and interest under the Loan Agreement. Should Mr Sit continue to fail to repay the amount found due under the Loan Agreement in this Judgment, the Plaintiff is free to seek remedies under the Loan Agreement and the Second Legal Charge which remain available to it.

95.  Accordingly, I made the following Orders:-

(1)  Judgment be entered for the Plaintiff in the amount of HK$250,000 together with contractual interest at the rate of 24% per annum accruing from 16 August 2018 until the date of judgment, and thereafter at judgment rate;

(2)  Notwithstanding Judgment being entered for the Plaintiff, Mr Sit is substantively successful in the majority of the issues in the consolidated actions. I make a costs order nisi that:

(a)   For the reasons set out at paragraphs 81-84 above, there be no order as to costs in respect of the written submissions dated 5 August 2021;

(b)Subject to subparagraph (a) above, the Plaintiff pays 80% of the Defendant’s costs of the consolidated actions including all costs reserved, with certificate for counsel, to be taxed if not agreed;

(3)  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute 14 days from the date of the judgment.

96.  I thank counsel for their assistance.