LUK YIN WAH GRACE v. GOLEND INTERNET FINANCE LTD

HCA 2107/2016

[2019] HKCFI 2283

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2107 OF 2016

________________________

________________________

________________________

J U D G M E N T

________________________

1.  In this trial, the plaintiff claims against the defendant for:

(1)  Redemption of loans in the sum of HK$2,100,000.00 that she advanced to the defendant under two Chinese agreements named as Debt Purchase Agreement (債權購買協議書) dated 29 and 30 June 2015 respectively and the outstanding interest in the sum of HK$84,000.00 (“Debt Purchase Agreements”);

(2)  Alternatively, a declaration that the Debt Purchase Agreements were validly rescinded by reason of the defendant’s director and shareholder’s misrepresentations;

(3)  Redemption of loans in the sum of HK$900,000.00 that she advanced to the defendant under two Chinese agreements named as Shareholder Joining Agreement (股東入股協議書) and Shareholder Agreement (股東協議書) both dated 29 August 2015 (collectively “the Shareholder Joining Agreements”) respectively and the outstanding interest in the sum HK$36,000.00;

(4)  Alternatively, a declaration that the Shareholder Joining Agreements were validly rescinded by reason of the defendant’s director and shareholder’s misrepresentations.

2.  The parties have filed pleadings.  The plaintiff has duly filed her witness statement.  Whilst the defendant filed its Defence on 23 September 2016, it has not filed any amendments in response to the plaintiff’s Amended Statement of Claim which was filed on 20 September 2017.

3.  The defendant has not filed any witness statement.  It did not adduce any evidence to prove its Defence.  The defendant did not appear at the trial.  Hence, it is matter of the plaintiff proving her case to the satisfaction of the Court that she is entitled to the relief she sought in her Amended Statement of Claim.

The plaintiff’s case

4.  According to the plaintiff, on 26 April 2015, she met a Ms Zhang Zhengfen (“Ms Zhang”), a director and shareholder of the defendant during a local tour organized by Zhejiang Women’s Association to Tai Tong Organic Eco Park.  Ms Zhang approached the plaintiff and invited her to invest in the defendant’s property-related investment products.  The plaintiff’s evidence is that:

“ I emphasised several times my concern is safeness of the investment. She said there is no default and is safe. In around mid June, 2015, she invited me to her office. I went to the office, she introduced me to her partner, a Hong Kong man Alfred Ho whose last job was Senior Vice President at a major international bank specialising in this field. They showed me various properties online from their computer. They recommended the Aberdeen property to me. Since Alfred had interviewed and know the borrower a decent man. She emailed me the recommended list on June 26, 2015. She gave me the impression throughout the time that she is a good educated professional person: She migrated to Hong Kong through HK Quality Migrant Admission Scheme; she was the President (or Chairman) of Hong Kong Internet Finance Association (HKIFA) in the year of 2015; She was a lecturer in Internet Finance course (sponsored by IBM) in 2015, and Executive Certificate program for MBA at HKU Space in 2016. On Aug 29, 2015 when I signed the MK property investment, I asked why the agreement is a shareholder agreement, and is not the same as last time. She and her husband said it is just for taxation purpose, the contract is the same as last one. So I did not realize any difference other than borrowing money to Golend.”

(See paragraph 2 of the plaintiff’s witness statement.)

The Debt Purchase Agreements

5.  The plaintiff and the defendant signed and executed the Debt Purchase Agreements on 29 and 30 June 2015 respectively.  Prior to entering into the said Debt Purchase Agreements, Ms Zhang told the plaintiff that:

(1)  The premises known as Unit No 3, 9/F, Block H, Kong Tai Court, No 17 Nam Ning Street, Aberdeen Centre (“Aberdeen Property”) had a market value of HK$5,290,000;

(2)  There was a first mortgage secured on the Aberdeen Property by Public Bank (Hong Kong) Limited (“the 1^st Mortgage”) taken out in 2013; and

(3)  On or around 16 June 2015, the defendant lent HK$3,100,000 to Yeung Kwok Chi (“Mr Yeung”) by a second mortgage secured on the Aberdeen Property (“the 2^nd Mortgage”).

6.  The plaintiff said that in order to induce her to sign and execute the Debt Purchase Agreements, Ms Zhang represented to her orally and by a document entitled “推薦的可投資的項目” that:

(1)  The outstanding amount owed under the 1^st Mortgage was only HK$800,000,00;

(2)  The mortgage rate of the Aberdeen Property, comprising both the 1^st and the 2^nd Mortgages, was only 73.7%; and

(3)  Even if Mr Yeung defaulted in payments, the defendant would still be able to recover all the money lent by selling the Aberdeen Property as the said mortgage rate was low, only 73.7%.

      (“The Aberdeen Property Representations”)

7.  At trial, the plaintiff repeatedly told this Court that Ms Zhang told her that there was no risk and she could recover the full amount of the loans she advanced to the defendant under the Debt Purchase Agreements.

8.  Pursuant to the terms of the Debt Purchase Agreements, the plaintiff duly advanced the sum of HK$2,100,000.00 to the defendant and she did receive monthly interest from the defendant from 16 July 2015.

9.  However, as from 16 April 2016, the defendant ceased to make such monthly interest payments to the plaintiff.  

10.  On 29 June 2016, the plaintiff’s solicitors issued a letter of demand to the defendant which stated, inter alia, that:

“ In the premises, we are instructed to write to demand you to pay our client the outstanding interests forthwith and to remind you to pay our client all future interests pursuant to the Agreements on time.

Pursuant to Clause 2 of the Agreements, the Debt has matured on 15 June 2016.  Pursuant to Clause 4 of the Agreements, after the debt is matured, you should redeem the 67.7% of the Debt from our client by repaying our client the Payment in the sum of HKD2,100,000.00.  In the premises, our client hereby calls upon you to redeem the said 67.7% of the Debt from our client by repaying our client the sum of HKD2,100,000.00.  Please let us know how you will propose to repay our client the said sum.”

11.  There was no reply to this letter.  In the Defence, the defendant merely relied on Clauses 5 and 10 of the Debt Purchase Agreements.  Paragraphs 5 – 8 of its Defence read as follow:       

“ 5.  Clause 5 (which is a standard clause in common) of the Debt Purchase Agreements expressly provides that

‘After signing of the Agreement and with confirmation of Party B’s transfer of funds by Party A, Party B’s purchase of part of the debt will formally take effect, and all the corresponding rights and obligations, risk and return will simultaneously be bestowed on Party B. Party B possesses the right to know and the right to manipulate the said Debt, and the right to vote on and decide on how to manage or deal with such Debt in proportion to the share she owns; Party A on obtaining over 50% of the creditors’ consent (calculated on the amount of debt purchased compared to the total debt) and their authorization act and execute the daily management work.’

6.   Clause 10 (which is also a standard clause in common) of the Debt Purchase Agreements further expressly provides that

‘Party A undertakes that the description of the debt is true and correct and that it has appointed qualified Hong Kong solicitors to handle the legal work concerning the property and that the legal charge has been duly registered at the Land Registry of Hong Kong. If the debtor concerned is unable to pay the interest and the principal on time Party B will vote on how to deal with the matter according to the proportion of her share in the debt. If legal action is entailed, Party A will pay the legal costs in advance until the whole legal process has been completed. Such costs paid in advance will be deducted first after completion and the net proceeds will be distributed in accordance with the share owned by Party B in the debt.’

7.  The Borrower has been repaying the monthly instalments under the loan agreement but then defaulted in making any further payment commencing 16^th April 2016.

8.  The Defendant avers that

    (a)  Pursuant to clause 2 of the Debt Purchase Agreements, both the benefits and the risks of the Debt have been transferred to the Plaintiff;

    (b)  Insofar as Party A’s interest in the Debt is concerned, Party B was and has been managing the Debt on her behalf with her authorization;

    (c)  Such benefits and risks were communicated to the Plaintiff prior to the signing of the Debt Purchase Agreements which have been expressly provided under clause 5 and clause 10 of the Debt Purchase Agreements.” (emphasis added)

12.  In my view, even if the defendant can rely on Clauses 5 and 10 of the Debt Purchase Agreements, the defendant has not produced any evidence that the borrower, Mr Yeung, had in fact defaulted in making his monthly repayments.  There is simply no evidence to substantiate the plea at paragraph 7 of the Defence.

13.  Further, even if Mr Yeung had defaulted in repayment, there is no evidence that the defendant has taken any steps in relation to the 2^nd Mortgage to claim against Mr Yeung in respect of both the outstanding principal and monthly repayments.

14.  In the absence of any evidence from the defendant on the above two issues, I am of the view that the plaintiff is entitled to claim for redemption of the loans advanced and the outstanding interests in the sum of HK$84,000.00.

15.  In any event, even if I am wrong on the above analysis, as a matter of fact, I find in favour of the plaintiff in respect of the misrepresentations made by Ms Zhang of the defendant to the plaintiff. I find the plaintiff to be a credible and reliable witness.  She was indeed induced into signing and executing the Debt Purchase Agreements on the misrepresentation that she could recover the full amount of the loans. It is certainly not true that even if Mr Yeung defaulted in his repayments, the defendant would still be able to recover all the money lent by selling the Aberdeen Property.

The Shareholder Joining Agreements

16.  Additionally, the plaintiff also entered into the Shareholder Joining Agreements with the defendant. It is again the plaintiff’s case that prior to signing and executing the Shareholder Joining Agreements, Ms Zhang of the defendant told her that: 

(1)  The premises known as Office No 4, 24^th Floor, Ho King Commercial Centre, Nos 2 – 16 Fa Yuen Street, Kowloon (the “Mongkok Property”) had a market value of HK$1,620,000;

(2)  There was a first mortgage secured on the Mongkok Property by Wing Fung Credit Limited (“the 1^st MK Mortgage”) in or around mid July 2015; and

(3)  In or around late July 2015, the defendant lent HK$900,000 to Mr Fong Wing Hon (“Mr Fong”) by a second mortgage secured on the Mongkok Property (“the 2^nd MK Mortgage”).

17.  The plaintiff said that in order to induce her to lend a loan of HK$900,000 and to sign the Shareholder Joining Agreements, Ms Zhang made the following false representations:

(1)  The sum owed under the 1^st MK Mortgage was only HK$200,000;     

(2)  The mortgage rate of the Mongkok Property, comprising of the 1^st and the 2^nd MK Mortgages was only 67.9%;

(3)  Even if Mr Fong defaulted in payments, the defendant would still be able to recover all the money lent by selling the Mongkok Property as the said mortgage rate was low, only 67.9%; and

(4)  Mr Fong had a very good credit rating based on the credit report that the defendant had obtained.

(“The Mongkok Property Representations”)

18.  In reliance of the Mongkok Property Representations, the plaintiff duly advanced the loan of HK$900,000 to the defendant.  The defendant having paid the plaintiff HK$9,000 per month from September 2015 to March 2016, ceased to make any monthly payment to the plaintiff as from 30 April 2016.

19.  Similarly, on 29 June 2016, the plaintiff’s solicitors issued a letter of demand to the defendant which stated, inter alia, that:

“ In the premises, we are instructed to write to demand you to pay our client the outstanding interests forthwith and to remind you to pay our client all future interests pursuant to the Agreements on time.

Our client also wishes to take back the Loan pursuant to the Financial Clauses of the Shareholder Joining Agreement.  Please let us know how you will propose to return the Loan in full to our client within the 3 months’ period from today pursuant to the said paragraph 5.”

20.  Again, there was no reply from the defendant. In its Defence, the defendant averred that:

“ 12.  Clause 3 of the Shareholder Agreement expressly provides that

‘After the property loan is made out, Party B will register (the Charge) in the Land Registry, and if there is litigation over the property, Party B will pay the costs of litigation in advance until the completion of the entire litigation process. Such costs will be deducted from the amount recovered and that Party A will get back her share proportional to the amount Party A has contributed. Each shareholder has no right to say otherwise.’

13.  The Defendant avers that

(a)  the purpose of entering into the Joining Agreements is to enable the Plaintiff to lend money to other borrowers through the Defendant;

(b)  it has been specified in the Shareholder Agreement that the fund from the Plaintiff is to be matched to a specific mortgage loan (or part thereof) and the Defendant will manage the loan on her behalf;

(c)  if there is default on the part of the borrower, the Defendant will pay the costs of the litigation in advance until the completion of the entire litigation process. Such costs will be deducted from the amount recovered and the Plaintiff will get back her share proportional to the amount she has contributed;

(d)  such risk and arrangement was communicated to the Plaintiff prior to the signing of the Joining Agreements.

15.  In the premises the Plaintiff has no right to demand for immediate repayment of the Loan and the interest accrued until the completion of the entire litigation process.” (emphasis added)

21.  Again, the defendant has adduced no evidence that the borrower, Mr Fong has defaulted in repaying his loan.  Even if Mr Fong has defaulted, there is no evidence that the defendant has taken reasonable actions to realise the value of the Mongkok Property so as to repay the plaintiff.

22.  In the circumstances, I am of the view that the plaintiff is entitled to rely on Clause 5 of the Shareholder Joining Agreement which reads:

「乙方如提前或於到期日提取資金，本公司將會在乙方書面通知起3個月內分段返還資金, 而餘額利息則維持不變。」

23.  Further, I also find that the plaintiff signed and executed the Shareholder Joining Agreements as a result of the Mongkok Property Representations. She was told that there would be no risk in recovering the full amount of her advancement in the sum of HK$900,000.00 in view of the mortgage ratio.  As it transpired, such representation was untrue.  Accordingly, the plaintiff is entitled to rescind the Shareholder Joining Agreements.

Disposition

24.  For all the reasons stated above, I make the following orders:

(1)  The plaintiff is entitled to redeem the sum of HK$2,100,000.00 from the defendant and the defendant do pay the said sum of HK$2,100,000.00 to the plaintiff forthwith;

(2)  The defendant do pay the sum of HK$84,000.00 to the plaintiff forthwith;

(3)  The defendant do pay further interest from and after 16 August 2016 at the rate of HK$21,000.00 per month until the defendant repays the sum of HK$2,100,000 to the plaintiff;

(4)  The plaintiff is entitled to repayment of the sum of HK$900,000 from the defendant and the defendant do pay the said sum of HK$900,000.00 to the plaintiff forthwith;

(5)  The defendant do pay the sum of HK$36,000.00 to the plaintiff forthwith;

(6)  The defendant do pay further interest to be accrued from and after 31 August 2016 at the rate of HK$9,000.00 per month until the sum of HK$900,000 is repaid to the plaintiff.

25.  I also make a costs order that the defendant do pay the costs of and occasioned by the plaintiff in this action to the plaintiff, on a party to party basis, to be taxed if not agreed.