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

HCMP 213/2023

[2024] HKCFI 383

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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D E C I S I O N

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A. INTRODUCTION

1.  By summons of 3rd November 2023 (“the Summons”),^[1] the Defendants applied for a stay of execution of Master D To’s order of 20th October 2023 (“the Order”) pending appeal (“the Appeal”).  The Master had ordered that, inter alia, that (1) the Plaintiff recover from the Defendants the sum of $22,724,751.91 together with interest, being sums outstanding under a loan from the Plaintiff to the Defendants, and (2) the 1st Defendant deliver up to the Plaintiff within 28 days possession of the properties comprised in the First Legal Charge dated 27th May 2022, which had been charged as security for the loan (“the Properties”).

2.  The loan was made by the Plaintiff, a licensed money lender, pursuant to a loan agreement with the Defendants (“the Loan Agreement”) evidenced by a facility letter of 24th March 2022 (“the Facility Letter”).

B.  THE APPLICABLE PRINCIPLES

3.  There is no dispute as to the applicable principles, which were set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at [6] to [10] (Ma J, as he then was).

3.1  An appeal does not operate as a stay of execution of proceedings.

3.2  In order to justify a stay of execution, the appellant must show that good reasons exist.  Relevant factors include whether the absence or existence of a stay would render an appeal nugatory, and the merits of the appeal.

3.3  The existence of an arguable appeal is the minimum requirement before the court will even consider granting a stay.  The existence of a strong appeal would usually by itself enable a stay to be granted, because this would constitute a good reason for a stay.  But where there only exists an arguable appeal, the appellant would need to provide the court with additional reasons as to why a stay is justified, for example, that the appeal would be rendered nugatory.  It is impractical and even undesirable to go deeply into the merits and strengths of the appeal, but the court must form a preliminary view of these aspects.

3.4  As to whether an appeal would be rendered nugatory, the court must first have regard to the nature of the order which is the subject matter of the appeal.  Evidence will be required as to why the appeal would be rendered nugatory.

3.5  The position of the respondent should not be forgotten.  It is always relevant to consider the prejudice that would be caused to the respondent in the event that a stay is granted, and if necessary, to impose conditions so as to minimise the prejudice caused to him.

3.6  Ultimately, the court embarks on a balancing exercise, with the starting point that the successful party is not to be deprived of the fruits of his success.

4.  Counsel for the Defendants, Mr David Fong, pointed out that the Appeal will be a hearing de novo before a judge in chambers, so that the threshold of arguability of the appeal has to be considered in this context.

C.  WHETHER ARGUABLE APPEAL

5.  The Defendants say that the Facility Letter breaches s.18(2)(i) of the Money Lenders Ordinance, Cap.163 (“the MLO”).  Section 18 provides as follows.

“(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless –

(a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) …

…

(2) The note or memorandum shall contain all the terms of the agreement and in particular shall set out –

…

(i) the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2 …

…

(3)    Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.”

6.  The Facility Letter set out not one, but two, interest rates – 20% per annum for the first month, and 8% per annum for subsequent months, said to be subject to review at the Plaintiff’s discretion.

7.  Mr Fong says that this is a breach of s.18(2)(i) MLO, the argument being that only one interest rate is allowed.

8.  Counsel for the Plaintiff, Mr Kevin Hon, says that there is no breach, given that s.7 of the Interpretation and General Clauses Ordinance, Cap.1, provides that words and expressions in the singular include the plural.

9.  It seems to me that it is arguable that as a matter of construction, s.18 MLO requires one rate of interest, representing the total interest as a proportion of the total principal, to be set out in the written note or memorandum of agreement.  If so, there may have been a breach of s.18, which must be strictly complied with: Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529 at [27].

10.  The Plaintiff says that even if there was a breach of s.18 MLO, the court can nevertheless, having regard to all the circumstances, order that the Loan Agreement should be enforceable to the extent, and subject to such modifications or exceptions, as the court considers equitable: s.18(3) MLO.  Mr Hon argues that given that the Plaintiff charges one of the lowest interest rates in the market, that the Defendants have not identified any vitiating factors, that the Defendants had previously acknowledged that they owed money to the Plaintiff and that they had in fact said that they were selling the Properties to make repayment, the discretion ought no doubt to be exercised in favour of the Plaintiff.

11.  The Defendants say that if all the circumstances are taken into account, including the Plaintiff’s breaches of other provisions of the MLO in the present case and repeated breaches of the MLO in other cases, the Plaintiff’s covering up of such breaches, and the lack of explanation of the Facility Letter at the time of signing, the court would come to a different view as to how the discretion should be exercised.  As regards their earlier admission that they owed money to the Plaintiff and were planning to sell the Property to make repayment, this was at a time when they were unaware that there were breaches of the MLO on which they could rely.  They further say that they have been deprived of the opportunity to respond to the Plaintiff’s allegation, put forward only in the Plaintiff’s reply affirmation evidence before the Master, that there was no relative imbalance in the status of the parties, and indeed that the Defendants had engaged in underhand conduct, as the Defendants had intentionally concealed other legal charges created over the Properties and were in fact sophisticated operators who exploited the court’s sympathy towards unrepresented parties, and they have lodged an appeal against the Master’s refusal to allow the filing of further evidence.  In the event that this appeal is allowed, the Defendants would have further circumstances to place before the court for consideration in the exercise of its discretion on the hearing of the Appeal.

12.  Whilst I have some reservation as to the strength of these points, at this stage, I cannot say that these are unarguable, such that the court would necessarily come to the same view as the Master did as to how the discretion under s.18(3) MLO is to be exercised.  I bear in mind that in Cheung Chow v Cheung Ng Sheong Steven, unreported, CACV 119/1993, 24th November 1993, p.7, Bokhary JA said that

“It is at least reasonably arguable that, as those learned judges held at first instance, the courts should be slow to relieve money lenders who fail to comply with the Ordinance regulating their activities, since any other approach would be to frustrate rather than to promote the objects of such legislation…”

D.  WHETHER APPEAL WOULD BE RENDERED NUGATORY

13.  Mr Hon argued that the absence of a stay would not mean that the Appeal is rendered nugatory, as the Defendants could be repaid.  However, part of the Defendants’ appeal is against the Master’s order that they deliver up possession of the Properties to the Plaintiff.  In the event that the Plaintiff sold the Properties, this part of the appeal would be rendered nugatory even if the Defendants were to succeed in the Appeal.

14.  The Plaintiff filed evidence that the Defendants had vacated the Properties and put them on the market, so that the Defendants wanted to sell in any event.  However, the Defendants say that whilst they had previously indicated that they would sell the Properties to repay the Plaintiff, this was at a time when they were unaware of the arguments open to them under the MLO. They have kept the Properties on the market to get an idea of the price they may fetch in the event that they are unsuccessful in defending the Plaintiff’s claim, so as to guard against a sale by the Plaintiff at an undervalue.  They would in any event not be able to sell the Properties of their own volition given the mortgages registered against the Properties.

15.  The Plaintiff says that the value of the Properties even as at November 2023 was insufficient to cover the amount outstanding to the Plaintiff; the deficit will only increase due to the falling property market and accruing outstanding interest.  However, as Mr Fong points out, fluctutations in the property market are a risk which the Plaintiff, as an experienced lender, would have been aware of at the time that it made the loan to the Defendants, and decided upon the amount to be lent.

16.  On balance, it seems to me that a stay of execution should be granted pending the determination of the Defendants’ Appeal.

17.  I was told that no hearing date has yet been fixed for the hearing of the Appeal as the appropriate timing would depend on the outcome of the Defendants’ appeal against the Master’s refusal to allow the Defendants to adduce further evidence, which is to be heard in March.  However, it would not be appropriate to grant an open-ended stay of execution pending appeal.  Even if further evidence is to be filed, there should be ample time to do this before the hearing of the Appeal.  The parties should proceed to fix a date for the hearing of the Appeal within seven days.

E.  CONCLUSION

18.  I grant an order in terms of the Summons, on condition that the parties proceed to fix a date for the hearing of the Appeal within seven days.