E-WAY (HONG KONG) PROPERTY CREDIT LTD v. FUNG WING TIM

DCCJ 3181/2016

[2019] HKDC 39

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3181 OF 2016

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JUDGMENT

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Background

1.  The plaintiff (the Lender) is a registered and licensed money lender under the Money Lenders Ordinance (Cap 163) (the “MLO”).

2.  Pursuant to a loan agreement dated 21 December 2015, the Lender advanced HK$350,000 to the defendant (“Mr Fung”) with the interest rate at 36% per annum (the “Loan Agreement”).

3.  Mr Fung holds 25% interest as a tenant-in-common in Flat 13, 14/F, Block C, Lai Yan Court, 278 Lai King Hill Road, Kwai Chung, New Territories (the “Property”).  Mr Fung’s wife holds the other 75% interest in the Property.  Mr Fung’s average monthly income was around HK$13,000.

4.  Mr Fung defaulted in his monthly repayment obligation in breach of the repayment schedule in the Loan Agreement.  The Lender thus puts forward a seemingly straight-forward claim in this action:-

(a) principal and interest in the sum of HK$383,571.23 (HK$350,000 plus interest at HK$33,571.23 from 22 March to 27 June 2016);

(b) interest on the sum of HK$350,000 at 36% per annum from 28 June 2016 until payment;

(c) costs on full indemnity basis.

5.  The Lender subsequently accepts that the correct principal for the loan should have been HK$343,000 (the “Loan”), as they were not entitled to deduct HK$7,000 (either as legal fees or upfront interest) from the HK$350,000 loan.

Defence

6.  In gist, Mr Fung says he had been defrauded by an intermediary called “康宏國際控股有限公司” (“Hong Wang”); and that the Lender is part of, or is aware of the fraud.

7.  As at December 2015, Mr Fung had the following outstanding loans:-

Lender	Date	Loan Amount	Outstanding Amount
Bank of China	11/2001	HK$800,000	HK$500,000
aEasy Credit Hong Kong Limited (“aEasy”)	11/2015	HK$600,000	HK$600,000

8.  In December 2015, a Ms Chung (“Chung”), claiming to be a staff at Hong Wang cold-called and asked Mr Fung over the phone as to whether he needed to borrow money.  Chung knew about Mr Fung’s indebtedness under the aEasy loan and commented that the interest for that loan was too high, and that she could arrange for Mr Fung another loan with a lower interest rate.

9.  Mr Fung expressed interest and Chung asked him to bring the aEasy loan documentation and his address proof to the offices of Hong Wang.

10.  In mid-December 2015, Mr Fung attended the offices of Hong Wang and a Terrence Chan (“Chan”) represented to Mr Fung that due to Mr Fung’s poor credit rating, Hong Wang would need to arrange an intermediate loan of HK$350,000 for 12 months with a money lender to improve his credit rating (the “Intermediate Loan”), and to pave way for a low interest rate loan (the “Proposed Loan”) from a money lender to clear all his indebtedness (including the aEasy loan and the Intermediate Loan).  The Intermediate Loan eventually turned out to be the present loan offered by the Lender under the Loan Agreement.

11.  Chan represented to Mr Fung that the break-down of the Intermediate Loan would be as follows:-

(a) HK$50,000 as service fee for Hong Wang;

(b) HK$100,000 for Mr. Fung’s disposal;

(c) HK$200,000 would be stake-held by Hong Wang and used with the Proposed Loan to settle the aEasy loan.

12.  Chan represented to Mr Fung that Hong Wang would pay for the first 3 repayment instalments of the Intermediate Loan.  Mr Fung relied on the representations of Chan and signed a retainer agreement with Hong Wang.

13.  On 18 December 2015, Mr Fung met with Mr Mok of the Lender at the Property for an inspection.  On 21 December 2015, Mr Fung attended the offices of Messrs K B Chau & Co with a male staff from Hong Wang.  Mr Mok was also present.  Mr Mok explained the terms of the Loan Agreement to Mr Fung and Mr Fung signed on various documents.  A male staff of Messrs K B Chau & Co deducted HK$7,000 from the HK$350,000 loan as legal fees. 

14.  A copy of the Loan Agreement and a cheque for HK$343,000 were given to Mr Fung.  The Lender’s case (denied by Mr Fung) is that other documents, including a memorandum of the Loan Agreement were also given to Mr Fung.

15.  Mr Fung then cashed the cheque and handed HK$250,000 in cash to Chan who met with Mr Fung at the bank.  Chan assured Mr Fung that after the Proposed Loan was approved, Hong Wang would use the HK$200,000 to repay the aEasy loan as well as the Intermediate Loan.

16.  Two photo receipts were given by Hong Wang to Mr Fung for (i) HK$50,000 as service fee; (ii) HK$200,000 as guarantee money pending full payment of the aEasy loan.

17.  The first 3 instalments (in the total sum of HK$31,500) repayable under the Loan Agreement had been repaid by Hong Wang for and behalf of Mr Fung.

18.  In March 2016, Chung tried to persuade Mr Fung to apply for the Proposed Loan jointly with his wife by using the entire Property as security.  Mr Fung refused and demanded repayment of HK$200,000.  Chung refused and claimed the HK$200,000 would only be returned after Mr Fung has repaid the aEasy loan and the Intermediate Loan.

19.  Mr Fung had been unable to contact Chung or Chan since 7 March 2016.  Mr Fung subsequently found out that Hong Wang had been closed down and reported the matter to the police.

20.  It turned out that Hong Wang never arranged for the Proposed Loan nor repaid the aEasy loan on Mr. Fung’s behalf.  It also never returned the HK$200,000 stake-held money to Mr Fung.  Thus, ultimately Mr Fung only received HK$93,000 from the HK$343,000 loan.

21.  Mr Fung says the Lender was in breach of sections 7, 18, 22, 24, 25 and 27 of the MLO.

Issues

22.  The Lender does not dispute that Mr Fung had been defrauded by Hong Wang.  It denies however that Hong Wang was acting on behalf of the Lender or that it was an agent of the Lender.

23.  Mr Fung’s case is that the Lender was “acting in collusion with” Hong Wang and hence the HK$250,000 paid by Mr Fung to Hong Wang ought to be set off against the Loan.

24.  Parties by and large agree to the following issues:-

The Collusion Issue

(a)  Whether or not Hong Wang was acting for or in collusion with the Lender when Hong Wang received from Mr Fung HK$50,000 as service fee, and HK$200,000 as stakeholder money so that the total amount of HK$250,000 paid to Hong Wang can be set off against the Loan under section 27(4) of MLO.

The MLO breaches

(b)  Whether or not the Lender breached section 18(1)(a) of the MLO by failing to provide a copy of the note or memorandum in accordance with 18(2) of the MLO within 7 days after the making of the Loan Agreement, and thereby rendering the Loan Agreement unenforceable.

(c) Whether or not the Lender breached section 18(2)(d) of the MLO by misstating the principal as HK$350,000.00 instead of HK$343,000 in the Memorandum, and thereby rendering the Loan Agreement unenforceable.

(d)  Whether or not the Lender breached section 18(2)(i) of the MLO by misstating the interest rate as 36% per annum in the Memorandum, and thereby rendering the Loan Agreement unenforceable.

(e) Whether or not the Lender breached section 18(2)(j) of the MLO by misstating the place of negotiation and completion of the Loan Agreement to be the Lender’s Office in the Memorandum, and thereby rendering the Loan Agreement unenforceable.

(f) In determining the question of enforceability under sub-paragraph (b) to (e) hereinabove, whether it would be inequitable that the Loan Agreement which did not comply with the relevant section (if a breach was established) should be held not to be enforceable.

(g) (i) Whether or not the Lender at the material time lent money to Mr Fung at an effective rate of interest exceeding 60% per annum contrary to section 24(2) of MLO, and thereby rendering the Loan Agreement illegal and unenforceable; or

 (ii)  Whether the Loan Agreement was extortionate contrary to Section 25(2) of MLO which gives the Court a discretion under Section 25(1) of MLO to reopen the transaction so as to do justice between the parties having regard to all the circumstances, and make such orders and give such directions as the court may think fit.

(h)  Whether or not the Loan Agreement was illegal contrary to section 22(1)(c) of MLO by providing directly or indirectly for the rate or amount of interest being increased by reason of any default in the payment of sums due thereunder, and thereby rendering the Loan Agreement unenforceable.

(i) Whether or not plaintiff at the material time carried on its business as a money lender at the premises specified in its licence, ie the plaintiff’s Office as required under section 7(1)(b) of MLO.

Credibility of Witnesses

25.  In order for the Court to decide on the issues in the present case, a large part depends on the credibility of Mr Mok of the Lender and Mr Fung.  Mr Ng, Counsel for Mr Fung, submitted (and Mr Hon, Counsel for the Lender, agreed) that when assessing the credibility and reliability of the parties involved, the court should focus on the inherent probabilities of their respective cases, the internal consistency of their evidence and their demeanor when testifying at trial.  This is aided by contemporaneous documents, circumstantial evidence tending to support one account rather than the other, and overall impression of the character/ motivation of the witnesses.  Re B (Children) [2009] 1 AC11.

26.  In assessing witnesses’ credibility, the court should bear in mind not only the demeanor of the witnesses in court, but also the long history of events, in particular the contemporaneous documents and the inherent probabilities of the witnesses’ account.  Esquire (Electronics) Ltd v The Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at 494C.

27.  I agree with the approach and principles and adopt them when assessing credibility of the witnesses.

The Collusion issue – The Law: Section 27 of MLO

28.  Section 27(3) of MLO provides:-

“Subject to section 33A(5), 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.”

29.  Section 27(4) of MLO provides:-

“If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.”

30.  Mr Ng submitted that the purpose and design of section 27(3) and (4) of the MLO is chiefly to prevent the statutory protection against excessive interest rates and extortionate stipulations in respect of loans from being stripped away or compromised by not only the money lender but also by any other related persons in receiving costs, charges, expenses, remuneration or reward from the borrower in addition to the interest charged by the money lender.  Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500 at §87, 88.  These various sums (irrespective of whatever label given) are essentially the borrower’s costs of borrowing from the money lender.

31.  Mr Ng further submitted that by relying on the phrase “in collusion with” under both sections 27(3) & (4) of the MLO, the statutory scheme is able to cover the entities who may have a less well-defined relationship with the money lender but nonetheless involved in part of the lending process, such as the intermediaries.

32.  Mr Hon, counsel for the Lender did not have issues with the law as stated by Mr Ng.

33.  On the meaning of ‘collusion’, the question to ask and answer is whether the persons who are said to have acted in collusion were “playing the same game” (HKSAR v Wong Kwok Wai (2013) 16 HKCFAR 191 at §11).  It is a wider concept than “conspiracy”. (Ever-Long Finance Ltd v Yeung Wah Lung [2017] HKLRD 500 at §92).  Such person would appear to be one who identifies its interests with the money lender’s rather than the borrower’s.  It would be sufficient for such person and money lender to co-operate with each other to do or abstain from doing some act(s) with a view to facilitating the conclusion of the loan transaction against the borrower’s interest or otherwise to his prejudice.  The game is therefore the stripping away of the borrower’s assets (whether from the loan or otherwise) by imposing additional fees on top of the interest Gain Wealth Global Credit Investment Limited v Lam Hau Hay (Unreported) 19 July 2018 at §60.

34.  As such, the word “collusion” should not be interpreted narrowly, and the broad definition of “playing the same game” does not require any explicit or implicit agreement to be found.

35.  In Gain Wealth Global Credit Investment Limited, Deputy District Judge C To was of the following view:-

“In my view, the cooperation may take many forms. The lender and the entities in collusion may act together or separately. They may act simultaneously, or in disjunctive temporal periods. They may act complementarily or supplementarily. They may appear to act independently, but if the arrangement including their roles and conduct taken as a whole is to facilitate the imposition of a charge or the receipt of a sum in connection with the procuring, negotiating, obtaining, guaranteeing and securing the repayment of the loan, such conduct should also be caught by [MLO].” at [70]

36.  The above principles were recently endorsed in Gain Wealth Global Credit & Investment Limited v Chan Suk Fong (Unreported) 21 December 2018.

37.  Mr Fung’s case was that the Lender together with its partners or agents and/or persons acting in collusion with the Lender (ie Hong Wang), had received from Mr Fung costs, charges, expenses, remuneration or reward being HK$7,000.00 as legal costs, HK$50,000.00 as agency fee, and HK$200,000.00 as stakeholder money in contravention of section 27(3) of MLO, and that Mr Fung was entitled to set off such sums against the amount actually lent under the Loan Agreement pursuant to section 27(4) of the MLO.

The Collusion Issue - Mr Mok’s evidence

38.  Mr Mok was the manager of the Lender and the only witness who gave evidence on behalf of the Lender.  I say at the outset that Mr Mok was an evasive and unreliable witness and I put little weight on his oral testimony. 

Relationship between the Lender and the intermediary/Hong Wang

39.  Mr Mok’s evidence was that a person called Dida, an intermediary, approached Mr Mok to apply for a loan for Mr Fung.  Mr Mok classified Dida as a broker, and not an agent, as he said a broker would be a person sourcing a loan for a client (such as an insurance broker) whereas an agent would work for a company and find clients for the company.

40.  There is no evidence on whether Dida was working for Hong Wang.  What is clear however, is that Dida was working towards getting Mr Fung the Intermediary Loan, which was part of the fraudulent scheme practised on Mr Fung.  As such, Dida was clearly related to Hong Wang.

41.  It is obvious throughout his testimony that Mr Mok was at pains to distance himself from Hong Wang as well as Dida.  Mr Mok claimed that he had never met Dida before the present loan.  Upon contact by Dida, Mr Mok did not ask for other information about Dida, including her full name or contact number, as Mr Mok claimed that they never asked for information from such intermediaries.

42.  Mr Mok claimed that he had asked Dida to provide relevant documents for him to consider.  Without mentioning what documents were required, Dida managed to fax over all the requisite documents with no omission. Mr Mok explained that this was not surprising and did not suggest any prior relationship between him and Dida as the documents were all standard documents that a lender would require. 

43.  The documents faxed over were:-

(a) The loan agreement and schedules to the memorandum of the agreement between Mr Fung and aEasy Credit Hong Kong Limited; identity card, address proof, income proof,

(b) Credit report of Mr Fung,

(c) Mr Fung’s employee card,

(d) Mr Fung’s HKID card,

(e) Land search record of the Property,

(f) Confirmation of payment of rates or government rent of Mr Fung,

(g) Account enquiry request form from Mr Fung to HSBC and his HSBC statement.

44.  I agree it is possible that within the loan industry such documents may be deemed standard documents for the approval of loans. 

45.  However, curiously, altogether there were a total of about 40 pages of documents faxed over, but pages 1 and 2 were missing.  As Mr Mok agreed, there would have been a page 1 and a page 2 to the fax.  One would have thought the first few pages would include a cover page setting out who the sender was and what the fax was in relation to. 

46.  It was Mr Mok’s testimony that all documents received would have been locked in a cabinet so it was not the case that they were lost.  The only explanation he could proffer was that maybe the first 2 pages were blank, in which case he would have discarded it.

47.  I find it unbelievable that with all the transactions that Mr Mok handled, both from brokers as well as individual clients, someone would just fax over documents with no cover page or at least a message setting out who the fax was from and what it was in relation to.  Assuming Mr Mok was right in that the first 2 pages had been blank pages, common sense would dictate that there would be some notes on p 3, the first page of the fax to indicate who the fax was from and what the fax was about.  There were no such notes.  I reject Mr Mok’s explanation as unbelievable.  I find Mr Mok evasive on the issue of whether he knew who Dida was.

48.  Mr Mok said that after receipt of the documents, he told Dida that the Lender was willing to grant a loan to Mr Fung and asked for Mr Fung’s number for direct contact.  His evidence was that he did not tell Dida the terms of the Loan Agreement or the amount of the loan approved.  All he asked Dida to do was to provide him with the contact details of Mr Fung and that was the last time he communicated with Dida. 

49.  This was challenged by Mr Ng as being inherently improbable: if Dida gave Mr Fung’s contact details at that stage to Mr Mok, whom she had never met before, there was nothing preventing a deal from being struck between the Lender and Mr Fung directly without the involvement of Dida at all.  Dida would thus be at risk of having brokered the deal for no remuneration.  Mr Mok agreed that under those circumstances it was possible that Dida could end up not being paid for the trouble she had gone through. 

50.  At this stage Dida had already successfully brokered a deal between Mr Fung and the Lender.  I consider it inconceivable that an intermediary would run the risk of not being paid for the work that she had already done, and willingly hand over the contact details of Mr Fung. 

51.  If Mr Mok were telling the truth about Dida willingly handing over Mr Fung’s contact details at that stage, there must have been some understanding between Mr Mok (or the Lender) and Dida that there was no danger of Dida being unpaid for her services.

52.  It was also Mr Mok’s testimony that although the Lender did not have any association with Hong Wang, Dida, Chung or Chan, he knew that Dida, or someone on behalf of the intermediary would be collecting a fee from Mr Fung.  This is because as accepted by Mr Mok, brokers of this sort would need to be paid by someone, either the lender or the borrower.  Since Mr Mok said that the Lender was not paying Dida or Hong Wang, he admitted that he knew Dida or Hong Wang would be charging Mr Fung a fee in connection with the Loan Agreement.

53.  As such, Mr Mok admitted that he knew Mr Fung would be paying charges for entering into the Loan Agreement to Dida or the intermediary that she was working with.

54.  Accordingly, I find there to be an understanding between the Lender and Dida acting on behalf of Hong Wang to the extent that the Lender knew and expected Hong Wang would be charging Mr Fung a fee for getting a loan approved for him from the Lender.

Hong Wang acting in the Lender’s interests

55.  On the risk assessment form dated 17 December 2015, Mr Mok had written down against “Remarks” the following words: “(1) Hold 3期供款”.  As explained by Mr Mok, this referred to the Lender’s intention to withhold from the loan amount a sum equivalent to the first 3 instalments payable by Mr Fung under the Loan Agreement. 

56.  Coincidentally, Hong Wang had promised Mr Fung that as an incentive, they would repay the 3 instalments of repayment schedule under the Loan Agreement for Mr Fung for the month of January, February and March 2016.  The undisputed fact is also that Hong Wang did cause these 3 instalments to be paid to the Lender on behalf of Mr Fung.

57.  Mr Ng submitted that from this we could see a strong suggestion that Hong Wang and the Lender had an agreement to the extent that they would repay the 3 instalments which the Lender stipulated in the Risk Assessment Form.

58.  Mr Mok denied any such agreement with Hong Wang.  Mr Mok claimed that the Lender eventually did not withhold the 3 instalments not because they knew it would be repaid by Hong Wang, but because they had been advised by their solicitors Messrs K B Chau & Co not to do so as it was not proper under the law. 

59.  I do not accept this explanation.  The date of the Risk Assessment Form was 17 December 2015, a Thursday.  On Friday, 18 December 2015, Mr Mok attended the property inspection with Mr Fung at the Property.  After an intervening weekend, on Monday, 21 December 2015, Mr Mok was already at Messrs K B Chau & Co attending to Mr Fung’s execution of various loan documents and a cheque was released to Mr Fung on the same day. 

60.  There was no explanation on when and how the Lender managed to seek for advice nor when and how Messrs K B Chau managed to advise the Lender about the impropriety of withholding a sum equivalent to the first 3 instalments payable by Mr Fung under the Loan Agreement during less than 2 working days.

61.  More importantly, if Messrs K B Chau had indeed advised the Lender not to withhold any sum under the Loan Agreement, they would not have withheld HK$7,000 from the HK$350,000 loan amount and only issued a cheque to Mr Fung for HK$343,000, which was also not allowed under the MLO.  It is illogical to suggest that Messrs K B Chau would on the one hand advise the Lender against withholding HK$31,500 and yet went ahead to withhold HK$7,000 as legal fees on the other hand.  I reject the suggestion that the Lender did not withhold the 3 instalments because of advice from Messrs K B Chau & Co.

62.  I also do not accept Mr Hon’s submission that there was nothing special about these 3 instalments and that it was a mere coincidence that those 3 instalments were paid off for Mr Fung by Hong Wang. 

63.  I find on the basis of the evidence that there was an arrangement between the Lender and Hong Wang that the first 3 instalments under the repayment schedule of the Loan Agreement would be paid by Hong Wang and that Hong Wang was acting in the Lender’s interests. 

Warning to Mr Fung

64.  During cross-examination, Mr Fung was at pains to reiterate that he had on two occasions told Mr Fung not to pay any of the HK$350,000 to other agents or third party.  At first, I find this suggestion to be inherently improbable.

65.  This is because Mr Mok agreed Dida introduced Mr Fung to the Lender and brokered the deal.  Whilst Mr Mok denied ever paying remuneration or commission to these agents, he agreed that someone would be paying these brokers, otherwise they would be brokering the deal for nothing, which is inherently improbable. Mr Mok also agreed that if the Lender did not pay them, it would be the borrower, in this case Mr Fung who had to pay them. 

66.  As Mr Mok clearly knew how the system worked, it is against common sense and unbelievable for Mr Mok to suggest that he had deliberately told Mr Fung (twice) not to pay a third party when he knew that the broker would only be paid by Mr Fung.  However, a direct dismissal of the suggestion was complicated by the fact that Mr Fung himself admitted during cross examination that Mr Mok did in fact warn him not to give any part of the loan to a third party.

67.  As the Court pointed out the inherent probabilities of this suggestion, Mr Mok explained that even though he had told Mr Fung not to pay any third party, he knew Mr Fung would be paying the broker something.  Mr Mok said he was only hoping that Mr Fung was smart enough to not pay over too much to the broker.  It is clear from Mr Mok’s answers that he was at least aware of the following:-

(a) there was a broker (Dida) involved;

(b) the broker would be paid something;

(c) despite having warned Mr Fung not to pay the broker (assuming he did warn Mr Fung), he knew the broker would be paid by the borrower, Mr Fung;

(d) there are brokers out there who would keep up to 80% of the loan amount;

68.  I find that Mr Mok was aware that despite his warning, Mr Fung would be paying Hong Wang charges for successfully brokering the Loan.  As Mr Mok admitted, it was just part of procedure that that he gave that warning which had no substance nor effect.

Collusion – Mr Fung’s evidence

69.  Mr Fung in his oral testimony adopted his witness statements.  Although there were some inconsistencies in his oral testimony, I find him to be an overall honest witness and accept his testimony on the following issues:-

(a) it was Chung of Hong Wang who first contacted him;

(b) the reason why he accepted Chung’s proposition to obtain the so-called Intermediate Loan was because he was eager to clear off all his loans, and despite trying to obtain loans elsewhere, he had failed to do so due to his then already existing loans;

(c) in mid-December 2015 (before meeting Mr Mok), Chan of Hong Wang already told him that they would arrange for the Intermediate Loan in the sum of HK$350,000 for the alleged purpose of improving his credit rating. 

70.  The only bit of his evidence which was unsatisfactory and on which I disbelieve him is in relation to whether Mr Mok had told him not to give any of the money from the loan to other third parties.  He had answered affirmatively when cross-examined and only retracted the answer upon re-examination.  When asked why there was such inconsistency, he only said he was confused and mistaken.  I do not accept the explanation.  Whether Mr Mok had told him not to give any part of the loan money to a third party was not an ambiguous question. 

Drawing of Inference

71.  Mr Fung was challenged by Mr Hon as to the basis upon which he thought the Lender was in collusion with Hong Wang.  It is clear from Mr Fung’s evidence that he had only come to suspect (perhaps with the assistance of the solicitors) that it was possible that the Lender was in collusion with Hong Wang.

72.  It is accepted by Mr Ng that in the present case there is no direct evidence pointing to any collusion between the Lender and Hong Wang (or other wrongdoers).  He relied on the case of Securities and Futures Commission v Wang Jian Hua & Others (HCMP 745/2013, Unrep, 29 October 2015) at paras. 78 – 79:-

“… In the absence of direct evidence…, the court may draw appropriate inferences from the objectively established facts. In drawing inferences, the court need not be satisfied that the matters to be inferred are the only possible explanation, for the criminal standard of proof does not apply here, but that according to the course of common experience they are probable to the standard required.

The court must of course guard against speculation or making informed “guesses” or choosing from equally possible permutations of fact… While under the civil standard of proof, an inference can be drawn without there being practical certainty … where allegations of serious wrongdoing are involved, though the standard of proof remains the civil one, [the court needs] to look for inferences that are “compelling” and refrain from drawing damning inferences on a bare or “mere” balance of probabilities.”

73.  I agree with the approach and would accordingly adopt it when the need to draw inferences arises.

74.  The following are undisputed/indisputable facts or facts that I find after hearing oral testimony:-

(a) When asked to hand over the contact details to Mr Mok of the Lender, Dida had no hesitation and was not in fear of not being paid.  There was an understanding between the Lender and Dida acting on behalf of Hong Wang to the extent that the Lender knew and expected Hong Wang would be charging Mr Fung a fee for getting a loan approved for him from the Lender.

(b) Hong Wang was acting in the Lender’s interests: the Lender had all along planned to withhold a sum equivalent to 3 instalments from the loan amount.  Hong Wang had from the very beginning informed Mr Fung that they would repay the first 3 instalments of the Loan.

(c) Chan of Hong Wang was the first one who informed Mr Fung that they would arrange for the Intermediate Loan in the sum of HK$350,000 for the alleged purpose of improving his credit rating.  This was before Mr Fung met Mr Mok at the property inspection.

75.  Based on the above facts and applying the principles in Securities and Futures Commission v Wang Jian Hua & Others , I have little difficulty in coming to the conclusion that the Lender was playing the same game as Hong Wang.  Hong Wang clearly identifies its interests with the Lender’s rather than Mr Fung’s.  There was clearly some tacit understanding between the Lender and Hong Wang on the identifying of a borrower and the subsequent arrangement leading to a loan.  There was clearly an understanding and co-operation between the Lender and Hong Wang with a view to facilitate the conclusion of the loan transaction against Mr Fung’s interest, in that upon the successful introduction of a client and conclusion of a loan, Hong Wang would be able to charge the borrower a fee, and in this case, a substantial one.

76.  I thus draw the inference that the Lender was acting in collusion with Hong Wang when Hong Wang received from Mr Fung HK$50,000 as service fee, and HK$200,000 as stakeholder money.  I therefore hold that pursuant to section 27(4) of the MLO, Mr Fung is entitled to set off HK$250,000 in total against the HK$343,000 actually lent under the Loan Agreement.

Breach of Section 18(1)(a), (2)(d), (i) & (j) of the MLO

77.  Section 18(1), (2) provides:-

“Form of agreement

(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) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

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

(a) the name and address of the money lender;

(b) the name and address of the borrower;

(c) the name and address of the surety, if any;

(d) the amount of the principal of the loan in words and figures;

(e) the date of the making of the agreement;

(f) the date of the making of the loan;

(g) the terms of repayment of the loan;

(h) the form of security for the loan, if any;

(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; and (Amended 69 of 1988 s. 15)

(j) a declaration as to the place of negotiation and completion of the agreement for the loan.”

78.  A money lender must comply with the formal requirements for documentation set out in section 18(1) and (2) of the MLO.  If he does not do so, subject to section 18(3) of the MLO, the loan is unenforceable so that the money lender will be unable to take legal proceedings for the recovery of the debt. Annotated Ordinances of Hong Kong, MLO [18.01]  

79.  The purpose of the legislation is to protect the borrower from unconscionable transactions and to ensure that he receives a complete and accurate record of the transaction so he knows the extent of his liability from time to time.  Annotated Ordinances of Hong Kong, MLO [18.02]

80.  The terms of this section must be strictly complied with because the legislation sets out the manner in which a money lending business must be conducted.  In case of non-compliance with section 18 (1) and (2) of the MLO, the nature of the mistake or its severity are not matters for the court because strict observance of the terms of the section is required. Annotated Ordinances of Hong Kong, MLO [18.04]

81.  In relation to section 18(1)(a) of the MLO, Mr Fung’s case is that he only received a copy of the English Loan Agreement from the male staff of Messrs K B Chau among all the documents signed by him at the office of K B Chau on 21 December 2015. Mr Fung said he had not received from the Lender any note or memorandum signed personally by him within 7 days after the making of the Loan Agreement, and hence there is a breach of section 18(1)(a) of the MLO. The Lender’s case is that the memorandum was given to him immediately after the loan agreement was made.  As I set out in the outset, I place little reliance on Mr Mok’s evidence and on this issue, I prefer the evidence of Mr Fung over that of Mr Mok and hold that no memorandum was provided within the time limit. Accordingly I find that there was a breach of section 18(1)(a) of the MLO.

82.  In relation to sections 18(2)(d) of the MLO, it is undisputed that the Lender had failed to put down the correct loan amount as HK$343,000.

83.  In relation to section 18(2)(i) the Lender admitted that the interest rate was not accurately stated by reason of the change in the principal amount from HK$350,000 to HK$343,000.  Mr Ng went further to submit that because Mr Fung eventually only ever received HK$93,000 out of the HK$350,000 loan, the mistake in terms of actual interest rate is actually greater if one takes the principal as HK$93,000 rather than HK$350,000.  However, Mr Ng accepted that for his argument to be accepted, there ought to be a finding by the Court that Hong Wang was an agent of the Lender.  I do not consider that the available evidence, whilst sufficient to suggest collusion between the Lender and Hong Wang, is sufficient to establish an agency relationship between them. Accordingly, the mistake in the rate of interest is only in relation to the mistaken loan principal of HK$350,000 instead of HK$343,000.

84.  In relation to section 18(2)(j) Mr Fung’s case is that the place of negotiation and completion was not at the Lender’s office as stated in the memorandum.  The Lender conceded that the conclusion of the contract was done at the offices of Messrs K B Chau but insisted that part of the communication was done by Mr Mok at the Lender’s office.  Taking into account the modern way of business transactions, I agree that at least part of the negotiations could be said to have taken place at the Lender’s office.  I find that there was no breach of section 18(2)(j) of the MLO as the place of completion was correctly stated.

85.  Mr Ng submitted that the terms of this section must be strictly complied with and in exercising the discretion under section 18(3) of MLO, the Court should be slow to relieve moneylenders who have not complied with the MLO.  If there was breach of section 18(1)(a) of MLO, the Court should begin with the premise that the Loan Agreement should be unenforeceable, and thereafter look at all the circumstances of the case to consider whether it would be inequitable that the Loan Agreement should be held to be unenforceable.

86.  The basis for the exercise of the court’s discretion was considered in the case of Brother’s Co v Ah Puk Transportation [1986] HKLR 821 at 825B-H where the moneylender did not provide a written memorandum to the borrower.  The court held that in deciding whether to exercise its discretion to enforce a claim, the court should consider all the circumstances including “the relative status of the parties, the nature and extent of the default, the way in which it arose, the implications for the borrower, and the attitude of the lender and the general appearance of the contract throughout”.  In CA Pacific Finance Ltd v Tsui Yun Bun Barry (HCA 632/2005, (Unreported), 20 July 2009) at §29, the knowledge and experience of the borrower were also considered.

87.  The Court of Appeal held that in exercising the discretion available to it, the courts should be slow to relieve moneylenders who have not complied with the MLO. Cheung Chow v Cheung Ng Sheong Steven (CACV 119/1993 (unreported) 24 November 1993) at §4

88.  Mr Ng submitted that the following are the relevant circumstances for the Court in considering whether to exercise its discretion:-

(a) Mr Fung was not a businessman but an office assistant earning a monthly salary (including overtime payment) in the region between HK$14,000.00 and HK$15,000.00.  At the material time, the defendant was still under immense financial obligations to repay the aEasy Credit Loan (monthly instalment of HK$12,402.00) and some other debts.

(b) The whole purpose of Mr Fung entering into Loan Agreement was to improve his credit rating and to obtain a lower-interest rate loan to repay the aEasy Credit Loan and the Loan. Hong Wang acting as agent of the plaintiff had misrepresented Mr Fung as to the purpose of the Loan Agreement.

(c) The repayment schedule of the Loan was admitted by the Lender as obviously unaffordable to and beyond the repayment ability of Mr Fung.  It was said that but for the misrepresentation, Mr Fung would not have entered into the Loan Agreement with an interest rate much higher than the interest rate of the aEasy Credit Loan.  

89.  Mr Hon on the other hand urged me to consider the following:-

(a) The discrepancy between the stated principal / interest rate and the effective principal / interest rate is minimal;

(b) Both parties knew the purpose of the Loan that it was for the transitional period for Mr Fung to improve his credit rating;

(c) Both parties were aware that Mr Fung would need to seek alternative method of repayment of the Loan;

(d) At the material time, Mr Fung could not repay his other then existing loan repayment instalments anyway;

(e) Mr Fung was aware that $7,000 would be deducted but chose to proceed with the transaction;

(f) Mr Fung was aware of the Loan amount, rate of interest and the term of the Loan;

(g) The Lender has an office address and that it was made known to Mr Fung (via the name card of Mr Mok);

(h) Mr Fung was aware that his credit rating was low and thus, carried a high credit risk;

(i) Mr Fung did not have any grievance against the Lender before meeting Mr Fung’s legal representatives; and

(j) The Lender’s purported registration of the Loan Agreement did not prejudice Mr Fung in any event.

90.  I see some force in Mr Hon’s submissions.  However, looking at the transaction as a whole, it is clear that the Lender was trying to take advantage of Mr. Fung’s financial hardship in granting a loan to him that they knew full well he would not be able to repay.  All the Lender cared about was that their interest was protected by a property and at the same time benefit from the high interests payable under such a loan.

91.  As Bokhary NPJ in HKSAR v Wong Kwok Wai said: “… the more rapidly and firmly this kind of heartless exploitation is put down as far as it is within the law’s power to do so, the better protected will be the vulnerable people like the borrower in the present case.”  I am of the view that such unscrupulous way of conducting business in the present case falls within the exploitation mentioned and should not be encouraged. 

92.  I am therefore of the view that the Court should not exercise its discretion to relieve the Lender as to the remaining HK$93,000 of the Loan.

Breach of section 7 of the MLO

93.  Section 7(1)(b) of the MLO provides that no person shall carry on business as a money lender at any place other than the premises specified in the licence.  The mischief behind the provision was to protect a borrower by preventing the dangerous business being conducted by persons using false names without the security of an ascertained address, or at places where men may be taken unawares or off their guard Annotated Ordinances of Hong Kong, MLO [7.02].

94.  Viewed against this mischief, I am of the view that although certain aspects of the negotiations may be said to be carried out not at the offices of the Lender, nevertheless Mr Fung was not misguided as to the fact that the Lender was carrying on business as a money lender.  I do not consider that section 7 of the MLO had been breached.

Breach of section 22 of the MLO

95.  Section 22(1)(b) of the MLO provides that any agreement made for the loan of money by a money lender shall be illegal if it prohibits repayment by instalment.  Mr Ng said that Clause 9 of the Loan Agreement offends this section as it provides that the Lender shall be entitled to demand full payment of the entire balance of the principal.  However, it is clear from the Loan Agreement and in fact it was the understanding of Mr Fung and the Lender that repayments were to be made by instalments.  I do not consider Clause 9 to be able to override the repayment schedule. 

96.  Section 22(1)(c) of the MLO provides that a loan agreement shall be illegal if it provides directly or indirectly for the rate of interest being increased by reason of any default in the payment of sums due under the agreement.  I do not see from the Loan Agreement such a provision.  The reference to “penalty interest” is in fact the same as the interest of the Loan.

97.  I therefore do not consider there was any breach of section 22 of the MLO.

Breach of section 24 of the MLO.

98.  Section 24 provides:-

“Prohibition of excessive interest rates

(1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interest which exceeds 60 per cent per annum commits an offence.

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).”

99.  Mr Ng argued that Section 2 of MLO defines “interest’ to include 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.  It is Mr Fung’s case that the principal was in fact only HK$93,000.00. Since the Lender now seeks to recover HK$383,571.23, the interest rate is in fact more than 60% per annum.

100.  As accepted by Mr Ng, since the Court does not find that there is an agency relationship between the Lender and Hong Wang, the amount received by Hong Wang as charges cannot be treated as having been received by the Lender. Accordingly, I do not consider that there was a breach of section 24 of the MLO.

Breach of section 25 of the MLO

101.  Section 25 provides:-

“Reopening of certain transactions

(1) Subject to section 24(2), where—

(a) proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

(b) subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate,

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

(2) For the purposes of this section, a transaction is extortionate if—

(a) it requires the debtor or a relative of his to make payments (whether unconditionally or on certain contingencies) which are grossly exorbitant; or

(b) it otherwise grossly contravenes ordinary principles of fair-dealing.

(3) Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair.

(4) In determining whether a transaction is extortionate for the purposes of this section, regard shall be had to such evidence as is adduced concerning—

(a) interest rate prevailing at the time it was made;

(b) the factors mentioned in subsections (5) and (6); and

(c) any other relevant considerations.

(5) Factors applicable under subsection (4)(b) in relation to the debtor include—

(a) his age, experience, business capacity and state of health; and

(b) the degree to which, at the time of entering into the transaction, he was under financial pressure, and the nature of that pressure.

(6) Factors applicable under subsection (4)(b) in relation to the lender or other person by whom the proceedings are taken include—

(a) the degree of risk accepted by the lender, having regard to the nature and value of any security provided;

(b) his relationship to the debtor;

(c) whether or not a specious cash price was quoted for any goods or services included in the transaction; and

(d) where one or more other transactions are to be taken into account, the question how far any such other transaction was reasonably required for the protection of the debtor or the lender, or was in the interest of the debtor”

102.  No particulars were given in the Re-Amended Defence on how the transaction was extortionate.  Mr Ng only submitted in his closing submissions that the Court ought to consider the Loan Agreement was extortionate as the Lender knew full well that Mr Fung would be unable to repay the Intermediate Loan.

103.  I am of the view that in the present circumstances, mere suggestions of business immorality is insufficient to characterize the transaction as extortionate under section 25 of the MLO.

Disposition

104.  In conclusion, I find that the Lender was acting in collusion with Hong Wang when Hong Wang received from Mr Fung HK$50,000 as service fee, and HK$200,000 as stakeholder money.  I therefore hold that pursuant to section 27(4) of the MLO, Mr Fung is entitled to set off HK$250,000 in total against the HK$343,000 actually lent under the Loan Agreement.

105.  In view of the Lender’s breaches of section 18 of the MLO, I am of the view that the remaining HK$93,000 part of the Loan extended by the Lender to Mr Fung is unenforceable.

106.  Accordingly, I make the following Orders:-

(1) the plaintiff’s claims against the defendant are dismissed. 

(2) a costs order nisi that the plaintiff pays the defendant’s costs, to be taxed if not agreed. 

(3) The defendant’s own costs to be taxed in accordance with the Legal Aid Regulations.