BAO YUAN FINANCE LTD v. LAU YEE TING AND OTHERS

HCMP 2470/2024

[2026] HKCFI 3261

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2470 OF 2024

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D E C I S I O N

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1.  In its Originating Summons dated 21 November 2024, the Plaintiff has made a claim, amongst others, against (1) the 1^st and 2^nd Defendants for all monies due under a loan agreement dated 24 August 2021 (“Loan Agreement”) and the relevant legal charges dated 26 August 2021 (“Legal Charges”), and (2) the 8^th and 9^th Defendants under a deed of guarantee dated 24 August 2021 (“Deed of Guarantee”).

2.  On 12 November 2025, Master Dick Ho ordered the 1^st, 2^nd, 8^th and 9^th Defendants to be liable under the Loan Agreement, the relevant Legal Charges and the Deed of Guarantee. This is their appeal against the learned Master’s orders. Their appeals have been directed to be heard together.

3.  The Plaintiff is a licensed money lender under the Money Lenders Ordinance (Cap 163) (“MLO”). Its case against the 4 relevant Defendants may be summarised as follows.

(1)  On 24 August 2021, the Loan Agreement was entered into between the Plaintiff as lender and the 1^st and 2^nd Defendants (as borrowers and mortgagors) and the 8^th and 9^th Defendants (as guarantors) in respect of a loan for HK$120 million (“Loan”), with various properties listed in the schedule of the Loan Agreement as charged properties for the Loan.

(2)  Also on 24 August 2021, the 4 relevant Defendants (and others) signed an acknowledgement (“Acknowledgment”) that they had received, amongst others, a copy of the memorandum made under s.18 of the MLO (“Memorandum”), a copy of the Loan Agreement and a repayment schedule, each showing that the 4 relevant Defendants (and others) had signed on it.

(3)  The Deed of Guarantee was also executed by the 8^th and 9^th Defendants on 24 August 2021.

(4)  On 25 August 2021, the 3^rd Defendant sold her property and it was agreed that the sale proceeds would be used to repay the Plaintiff. As a result, no legal charge in respect of the 3^rd Defendant’s property was executed.

(5)  On 26 August 2021, the relevant Legal Charges were executed, and the Loan was advanced by the Plaintiff to the relevant Defendants.

(6)  The Loan, and another loan of HK$10 million from another moneylender (Unicorn Credit Limited (“Unicorn”)), were used to redeem prior mortgages in respect of the properties owned by the relevant Defendants.

(7)  On 27 August 2022, the relevant Defendants were in default of payment under the Loan Agreement. Demand letters were issued on 10 September 2024.

(8)  On 21 November 2024, the Plaintiff commenced proceedings herein against the Defendants.

4.  I will first deal with the appeals of the 1^st, 2^nd and 8^th Defendants.

A.  THE 1^ST, 2^ND AND 8^TH DEFENDANTS’ APPEALS

A1.  1^st and 2^nd Defendants’ Case

5.  The 1^st and 2^nd Defendants contend that (1) during the negotiation stage of the Loan Agreement, the Plaintiff’s representatives agreed that so long as the properties to be secured remained the same, the Plaintiff would agree to each mortgagor being responsible for his/her own portion of the loan proportionate to the value of his/her own mortgaged property (“the Alleged Common Understanding”) and (2) during the execution of the Loan Agreement, all parties agreed that the amount to be repaid by each mortgagor would be determined by the amount of money actually advanced to each of them (“the Alleged Agreement”). They submit that the execution process and the identity of the Plaintiff’s representatives ought to be investigated at trial to determine whether the Alleged Common Understanding and the Alleged Agreement existed.

6.  The 1^st and 2^nd Defendants also submit no Memorandum was given to them at the relevant time and that the requirement under s.18(1) of the MLO is not satisfied.

7.  The relevant legal principles are trite. It is for the relevant Defendants to establish that there are triable issues. For this purpose, the court seeks to ascertain whether the relevant defendant has demonstrated that what he/she says is believable, and if so, whether what he/she says amounts to an arguable defence in law. See Billion Wealth Group Ltd v Strategic Media International Ltd (unreported, HCMP 2586/09, 3 May 2010) [2]-[5] (Fok J).

8.  As far as the Alleged Common Understanding and the Alleged Agreement are concerned, I disagree with the 1^st and 2^nd Defendants that they are triable issues.

(1)  The Alleged Common Understanding and the Alleged Agreement were first featured in the 3^rd Defendant’s affirmation dated 22 May 2025 filed in these proceedings. When the 2^nd Defendant filed her affirmation, she referred to the 3^rd Defendant’s affirmation. In particular, the 2^nd Defendant said that she was informed by the 8^th Defendant that she would be responsible for obtaining a loan proportionate to the value of the charged property. She commented that what she was told by the 8^th Defendant was “consistent” with the Alleged Common Understanding which the 3^rd Defendant referred to.

(2)  In her affirmation, the 2^nd Defendant further said that she “heard and understood that [the Alleged Agreement] agreed by all parties, including [herself]”. She then said that she had “double-confirmed [her] understanding with representatives of the Plaintiff and [she] was answered in the affirmative”.

(3)  It is my view that the 2^nd Defendant’s evidence on the Alleged Common Understanding and Alleged Agreement is unsatisfactory and inherently implausible. In relation to the Alleged Common Understanding, the 2^nd Defendant never deposed in her affirmation that anyone on behalf of the Plaintiff had said anything to her personally about it prior to the execution of the Loan Agreement. In other words, the 2^nd Defendant’s evidence on the Alleged Common Understanding is at most hearsay evidence. If the 2^nd Defendant has any personal knowledge about the Alleged Common Understanding, it is inexplicable why she has to resort to rely on the 8^th Defendant’s hearsay evidence in her affirmation.

(4)  In relation to the Alleged Agreement, the 2^nd Defendant’s evidence is flatly contrary to the express terms of the Loan Agreement, which was in Chinese. Clause 1 of the Loan Agreement provides that each of the borrowers (including the 1^st and 2^nd Defendants) should repay the Loan and interest. Further, there are other clauses (such as clauses 2, 8 and 11) which refer to the possibility of the borrowers being responsible for the outstanding part of the Loan and interest thereon. There is no evidence to suggest that the 2^nd Defendant did not understand the terms of the Loan Agreement, or that she had made any queries about the terms with the Plaintiff prior to her execution of the same. Indeed, clause 21 suggests that all the parties who executed the Loan Agreement understood the legal effect of it. If the Alleged Agreement had been made, it is inherently implausible that the 2^nd Defendant would still proceed to execute the Loan Agreement which contains many terms that are contradictory to the Alleged Agreement.

(5)  As to the 2^nd Defendant’s evidence that she had double‑confirmed the Alleged Agreement with the Plaintiff, I consider such evidence to be vague. She failed to identify in her affirmation which representatives of the Plaintiff who allegedly made the confirmation.

(6)  The position of the 1^st Defendant is even weaker. The 1^st Defendant never filed any evidence in these proceedings. In the 2^nd Defendant’s affirmation, she said that she was authorised to make her affirmation on behalf of, amongst others, the 1^st Defendant. However, the 2^nd Defendant’s hearsay evidence about the Alleged Common Understanding does not assist the 1^st Defendant; there is simply no evidence from the 1^st Defendant that he knew anything about it.

(7)  Similarly, there is no evidence from the 1^st Defendant that he adopts what the 2^nd Defendant has said about the Alleged Agreement in her affirmation. If the Alleged Common Understanding and/or the Alleged Agreement had existed, it is inexplicable why the 1^st Defendant has not filed any affirmation evidence to give his personal account of what he heard and understood, with full particulars. Insofar as the 1^st Defendant seeks to rely on the 2^nd Defendant’s affirmation evidence to support his case of the Alleged Agreement, I repeat what I said earlier about the inherent implausibility of the 2^nd Defendant’s evidence.

9.  As to the 1^st and 2^nd Defendant’s contention that the Memorandum was not provided to them by the Plaintiff, I also fail to see how this can constitute a triable issue.

(1)  This contention is not open to the 1^st Defendant to advance for the simple reason that he has not filed any evidence to say anything about not receiving the Memorandum.

(2)  In her affirmation, the 2^nd Defendant asserted that she has never received the Memorandum. However, she does not dispute that she had signed the Memorandum. A copy of the Memorandum produced by the Plaintiff shows that the 2^nd Defendant had confirmed therein that she had received a copy of the Memorandum. Further, the 2^nd Defendant had signed the Acknowledgement acknowledging that she had received, amongst other things, a copy of the Memorandum. There is no explanation from the 2^nd Defendant about her acknowledgements of having received the Memorandum in these documents. In these circumstances, the 2^nd Defendant’s contention that she never received a copy of the Memorandum is, in my view, unbelievable.

10.  For these reasons, it is my view that the 1^st and 2^nd Defendants have not raised any triable issues or any arguable defences to the Plaintiff’s claims.

A2.  8^th Defendant’s Case

11.  As far as the 8^th Defendant is concerned, his counsel submits that he is entitled to rely on the defence under the MLO and the defence disclosed in the 9^th Defendant’s affirmation. For the reasons which I am about to give, I am unable to see how these points are open to the 8^th Defendant to take in these proceedings.

(1)  Like the 1^st Defendant, the 8^th Defendant also chose not to file any affirmation evidence to oppose the Plaintiff’s claims.

(2)  Therefore, there is no evidential basis to suggest that the 8^th Defendant was not given a copy of the Loan Agreement or the Deed of Guarantee by the Plaintiff. Indeed, even though the 2^nd Defendant filed her affirmation on behalf of the 8^th Defendant, she excluded any reference to the 8^th Defendant when she said that she did not receive any note or memorandum as required under s.18 of the MLO (see paragraph 30 of the 2^nd Defendant’s affirmation). In any event, I note that the 8^th Defendant also signed on the Memorandum and the Acknowledgement, which confirmed that he had received a copy of the Memorandum.

(3)  In relation to the matters mentioned in the 9^th Defendant’s affirmation, it is important to note that that affirmation was not filed for or on behalf of the 8^th Defendant. The matters mentioned in the 9^th Defendant’s affirmation plainly cannot be relied upon by the 8^th Defendant in these proceedings.

12.  Accordingly, I also consider that the 8^th Defendant has not raised any triable issues or any arguable defences to the Plaintiff’s claim.

B.  THE 9^TH DEFENDANT’S APPEAL

B1.  9^th Defendant’s Case

13.  I now turn to the appeal brought by the 9^th Defendant. As mentioned earlier, the 9^th Defendant executed the Loan Agreement and the Deed of Guarantee as a guarantor.

14.  In the skeleton argument filed on behalf of the 9^th Defendant, a number of submissions have been advanced to contend that the 9^th Defendant’s liability under the Deed of Guarantee has been discharged. I will deal with each of these submissions in turn.

15.  First, the 9^th Defendant submits that the Plaintiff has not applied the entirety of the sale proceeds of three mortgaged properties to the Loan, and his position is therefore prejudiced. In my view, this submission has no substance.

(1)  It is common ground that three of the properties that were charged to the Plaintiff by the 1^st, 5^th and 7^th Defendants were sold after the Loan Agreement was executed, and part of the sale proceeds were used to reduce the Loan.  

(2)  According to the Plaintiff, as a result of the three sales, a total of HK$41,709,278 was used as part payment for the Loan. This was higher than the total sale proceeds from the three sales, which was HK$38,200,000. No evidence has been filed by the 9^th Defendant to dispute these figures. The Plaintiff’s unchallenged evidence shows that as a result of the sale of the three properties, the total amount of the Loan was reduced by more than the total amount of the sale proceeds.

(3)  In these circumstances, I cannot see how the 9^th Defendant can say that his position has been prejudiced as a result of the Plaintiff’s application of the various sale proceeds.

(4)  Further, by suggesting that the entirety of the sale proceeds should be used towards the Loan, the 9^th Defendant presupposes that all the sale proceeds were at the free disposal of the relevant borrowers, namely the 1^st, 5^th and 7^th Defendants. However, it does not appear that such a presupposition is correct. According to the land search record of the three mortgaged properties, at the time when each of the relevant mortgaged properties was sold, it was subject to the first legal charge in favour of the Plaintiff and a second mortgage in favour of Unicorn. Both the Plaintiff’s legal charge and Unicorn’s second mortgage had to be discharged before the relevant property could be sold. In these circumstances, it would not be possible for the entirety of the sale proceeds to be solely applied to reduce the Loan.

(5)  In any event, the 9^th Defendant was not a party to any legal charge entered into with the Plaintiff, and was never a mortgagor. It is unclear why he should be in a position to complain about how the sale proceeds should be applied by the Plaintiff under the relevant legal charge. No authority has been produced by the 9^th Defendant to suggest that a mortgagee would need to apply the sale proceeds of a mortgaged property in such a way so as not to prejudice the position of a guarantor.

(6)  There is also no merit in the 9^th Defendant’s submission that the Plaintiff acted contrary to clause 3 of the Loan Agreement as to how the repayment of money should be effected. As provided in clause 8 of the Deed of Guarantee, “all money received by the Lender from the Guarantor or the Borrower or any person or persons liable to pay the same may be applied by the Lender to any account or item of account or to any transaction to which the same may be applicable”. The 9^th Defendant cannot complain about how the various sale proceeds were dealt with and applied by the Plaintiff.

(7)  For the sake of completeness, I should also mention that I reject the 9^th Defendant’s submission that the Plaintiff was in breach of clause 8(vii) of the Loan Agreement in selling the three mortgaged properties. It is clear that the intention of clause 8(vii) is to prohibit the doing of any acts by the borrowers to add further encumbrance to the mortgaged properties. The clause does not prohibit any sale of the mortgaged properties. On the contrary, clause 16 of the Loan Agreement expressly provides that the Plaintiff would have the right to auction the mortgaged properties if the borrowers and guarantors failed to honour their obligations.

16.  Next, the 9^th Defendant submits that because the 3^rd Defendant’s property was never charged to the Plaintiff, that would constitute a subsequent variation to the Loan Agreement. It is said that such a variation was done without his consent and would discharge the 9^th Defendant’s liability under the Deed of Guarantee.

(1)  This submission is based on the operation of the rule in Holme v Brunskill (1878) 3 QBD 495. In Wong Yu Man James v China Sun Group Holding Ltd [2025] 2 HKC 68, Chow JA at [33] described the rule as follows: “if the principal and creditor without the guarantor’s consent agree between themselves to alter the nature of the principal obligation the guarantor is discharged because the obligation in its altered form is not that which was guaranteed”.

(2)  It would appear that all the parties to the Loan Agreement on 24 August 2021 intended that the 3^rd Defendant’s property would be charged to the Plaintiff.

(3)  It is important to set out what happened immediately after the Loan Agreement was executed on 24 August 2021. According to the agreed chronology, the 3^rd Defendant entered in a provisional agreement to sell her property on 25 August 2021, i.e. one day after the Loan Agreement was executed. On the following day on 26 August 2021, 5 legal charges were executed by the 1^st, 2^nd, 4^th, 5^th, 6^th and 7^th Defendants in favour of the Plaintiff. The sale of the 3^rd Defendant’s property was completed on 30 September 2021, and HK$3.8 million of the sale proceeds was paid to the Plaintiff as repayment under the Loan Agreement.

(4)  Looking at these undisputed facts objectively, it appears to me that there was a variation of the Loan Agreement to the extent that the 3^rd Defendant would no longer be required to charge her property to the Plaintiff, and would instead sell it so that she could pay some of the sale proceeds to the Plaintiff to reduce the Loan.

(5)  On these agreed facts, it seems to me that the variation could only be beneficial to the 9^th Defendant. As Cotton LJ said in Holme v Brunskill (above) at 505 said “where it is without inquiry evident that the alteration is insubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged”.

(6)  Further, as stated by the learned author of O’Donovan and Phillips: The Modern Contract of Guarantee (4^th English ed, 2020) at §7-019:

“Instances of alterations which are clearly for the benefit of the guarantor include an agreement between the principal and the creditor for a reduction in the amount of the principal’s debt or in the interest rate. This will be to the advantage of the guarantor because the guarantor’s liability will be correspondingly reduced.”

(7)  In any event, even if there is any doubt about whether the variation could only be beneficial to the 9^th Defendant, I believe clauses 5 and 7 of the Deed of Guarantee would operate as a sufficient anti-discharge provision to displace the rule in Holme v Brunskill. Clause 5 relevantly provides that the “liability of the Guarantor hereunder shall not be affected by any failure by the Lender to take any security...”. Clause 7 relevantly provides:

“The Lender shall be at liberty without thereby affecting its rights against the Guarantor hereunder at any time without reference to the Guarantor … to vary … or release any securities held or to be held by the Lender for or on account of the monies intended to be hereby secured or any part thereof …”

(8)  The Plaintiff’s decision not to create a legal charge over the 3^rd Defendant’s property would either amount to a failure to take security, or to a variation of or release of security to be held. Such an action would in my view fall within the clear wording of clause 5 or clause 7: cf Duncombe v ANZ Bank Ltd [1970] Qd R 202 at 206G-207A; 207C-D (WB Campbell J).

(9)  The 9^th Defendant submits that the variation mentioned earlier increased the 9^th Defendant’s risk because the change in the number of mortgaged properties somehow affected “the risk assessment undertaken by [the 9^th Defendant]”. I cannot accept this submission. There is nothing in the 9^th Defendant’s affirmation to suggest that he had undertaken any risk assessment before he executed the Loan Agreement and the Deed of Guarantee. Further, there is no evidential foundation to suggest that the 9^th Defendant would be put at risk when it was decided that the 3^rd Defendant’s property would be sold rather than charged to the Plaintiff.

(10)  Moreover, I disagree with the 9^th Defendant’s submission that clause 7 is only designed to protect the Plaintiff from “administrative missteps or legitimate commercial compromises”, and would take clause 7 out of the general purview of the guarantee. This is only an assertion. On an objective reading of clause 7, it is difficult to see how clause 7 can only be confined to protecting the Plaintiff from the alleged “administrative missteps or legitimate commercial compromises”.

(11)  The 9^th Defendant further argues that the subsequent sale of the 3 mortgaged properties of the 1^st, 5^th and 7^th Defendants constituted a variation. As already mentioned earlier, the Plaintiff’s unchallenged evidence shows that the sale of the three properties resulted in the total amount of the Loan being reduced by more than the entirety of the sale proceeds. In these circumstances, the sales of the 3 mortgaged properties owned by the 1^st, 5^th and 7^th Defendants could only be beneficial to the 9^th Defendant. Clause 7 of the Deed of Guarantee further in my view displaces the operation of the rule in Holme v Brunskill by expressly providing that the Plaintiff did not need to seek agreement from the 9^th Defendant to vary or release the 3 relevant legal charges in relation to the properties owned by the 1^st, 5^th and 7^th Defendants.

(12)  For these reasons, I do not believe the 9^th Defendant has raised any triable issue based on the rule of Holme v Brunskill.

17.  Thirdly, the 9^th Defendant complains that the Plaintiff’s actions were a capricious and irrational exercise of contractual discretion, relying on the UK Supreme Court’s decision in Braganza v BP Shipping Limited [2016] 1 WLR 1661. This submission is unmeritorious. The 9^th Defendant has failed to formulate the proposed duty that should be implied into clause 7 of the Deed of Guarantee. In any event, given that clause 7 is not concerned with the application of sale proceeds, it is difficult to understand how the Plaintiff can be said to have breached the so-called “Braganza” duty by acting capriciously or irrationally when it released the mortgaged properties that were charged in its favour. The 9^th Defendant has not shown any triable issue in relation to this issue.

18.  Fourthly, counsel for the 9^th Defendant put forward a defence based on the MLO in their skeleton argument by suggesting that no Memorandum had been provided to the 9^th Defendant. However, the 9^th Defendant said nothing about the Memorandum in his affirmation, let alone not having been provided with it at the time. Moreover, the evidence adduced by the Plaintiff shows that the 9^th Defendant also signed on the Memorandum and the Acknowledgement, which confirmed that he had received a copy of the Memorandum. The 9^th Defendant has not therefore shown any triable issue in relation to the Memorandum.

19.  Lastly, the 9^th Defendant disputes the accuracy of the statement of account prepared by the Plaintiff. She asserts that the entirety of the sale proceeds of the 3 mortgaged properties should be used to deduct from the sums due to the Plaintiff. As I explained earlier, on the facts of the present case, it was not possible for the entirety of the sale proceeds to have been solely applied to reduce the Loan. In any event, clause 6 of the Deed of Guarantee provides “any judgment recovered by the [Plaintiff] against the Borrower in respect of such indebtedness shall be binding and conclusive on and against the Guarantor in all courts of law”. The amount the Plaintiff seeks against the 9^th Defendant is HK$93,686,953.12. This is identical to the amount in the judgment that the Plaintiff has obtained against the 4^th, 6^th and 7^th Defendants in these proceedings, for which no appeal has been lodged. In the light of clause 6, the Plaintiff’s figures should be taken to have been accepted by the 9^th Defendant to be binding and conclusive as against him. For these reasons, it is my view that the 9^th Defendant has failed to raise any triable issue in relation to the quantum of the Plaintiff’s claim.

B2.  Conclusion

20.  For all these reasons, I consider the 9^th Defendant has not raised any triable issues or any arguable defences to the Plaintiff’s claim.

C.  DISPOSITION

21.  I dismiss the notice of appeal of the 1^st, 2^nd and 8^th Defendants dated 25 November 2025 and the notice of appeal of the 9^th Defendant dated 24 November 2025.

22.  I will now hear the parties on costs.

[Submissions on costs]

23.  I make an order that the costs of and occasioned by the two notices of appeal are to be paid by the 1^st, 2^nd, 8^th and 9^th Defendants to the Plaintiff on an indemnity basis, to be summarily assessed.

[Submissions on summary assessment]

24.  Adopting a broad-brush approach, I summarily assess the Plaintiff’s costs at HK$165,000.