LAM YEE HUNG v. CHINACHEM CHARITABLE FOUNDATION LTD

CACV 124/2023, [2025] HKCA 949

On Appeal From [2023] HKCFI 908

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 124 OF 2023

(ON APPEAL FROM HCA NO 764 OF 2015)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  This is the Defendant’s appeal against the judgment of Deputy High Court Judge Leung (as he then was) dated 31 March 2023, whereby it was adjudged that the Defendant was liable to repay to the Plaintiff a loan in the total sum of HK$42,850,000 together with interest thereon at the rate of 48% per annum from the respective dates on which various tranches of the loan were advanced to the Defendant until payment.

2.  As will be seen, the principal issue which arises for determination in this appeal is what an oral loan agreement made in Hong Kong which provides for interest on the loan to be paid at the “maximum rate as the law permitted” means in the circumstances of the present case.

BASIC FACTS

3.  The background facts of this case have been set out in the written judgment of the Judge dated 31 March 2023 (“the Judgment”). For the purpose of disposing of the present appeal, the following brief summary should suffice.

4.  The Plaintiff (“Mr Lam”) was a businessman with connections both in the Mainland and Macau including, in the latter case, those in the gaming industry.

5.  The Defendant, Chinachem Charitable Foundation Limited (“the Foundation”), is a company incorporated in Hong Kong and limited by guarantee set up in 1988 by the late Mrs Nina Wang Kung Yu Sum (“Mrs Wang”) and her late husband (“Mr Wang”). Prior to their respective deaths, Mr and Mrs Wang were in control of the Chinachem Group. Although the business of the Foundation was said to be the granting of financial support for charity and community benefits, as found by the Judge, its sources of donation mostly came from within the Chinachem Group, and it was effectively a conduit through which funds were received and donated to designated donees on Mrs Wang’s behalf.

6.  After the passing of Mrs Wang in April 2007, the board of governors of the Foundation consisted of three siblings of Mrs Wang, including Dr Kung Yan Sum (“Dr Kung”) and two younger sisters, and a number of employees of the Chinachem Group, including Mr Chan Kam Por (“Mr Chan”), a qualified accountant who was, at the material time, the chief financial officer of the Chinachem Group. At that time, the chief executive officer of the Chinachem Group was Mr David Hui Yip Wing (“Mr Hui”).

7.  Since 2007, the Foundation had been embroiled in a high profile litigation with Mr Tony Chan concerning the estate of Mrs Wang (HCAP 8/2007, “the Probate Action”). The Foundation, under the control of the Kung siblings, took the stance that it was the beneficial owner of the estate of Mrs Wang, including the Chinachem Group, and the then understanding of those concerned was that success in the Probate Action would put the Kung siblings in control of the Foundation as well as the Chinachem Group[1].

8.  By early 2009, the Foundation had already spent over HK$50 million on legal costs in the Probate Action, and was in need of substantial further funds for the trial of the action[2], which had been set down for hearing in May 2009 with an estimated length of some 40 days. The Foundation was not able to look to the Chinachem Group for funds to finance the litigation because the estate of Mrs Wang had been put under the control of the administrators pendente lite since the end of 2007. Institutional borrowing was not feasible in the absence of fixed assets or substantial income-producing business of the Foundation[3]. In short, the Foundation was in urgent need of funding by early 2009.

9.  In late 2008/early 2009, the late Mr Tsui Tsin Tong (“Mr Tsui”), a Hong Kong businessman and a member of the Chinese People’s Political Consultative Conference, was apparently assisting Dr Kung/the Foundation to explore urgent funding for the Probate Action. Mr Tsui and Mr Hui were friends of Mr Joseph Pang Chun Sing (“Mr Pang”), a Hong Kong businessman. Mr Pang was a friend and business partner of Mr Lam, while Mr Lam was acquainted with Mr Tsui.

10.  According to Mr Lam, it was through the introduction of Mr Tsui that he came to meet Dr Kung in early 2009. Mr Lam said that he reached an oral agreement (“the Loan Agreement”) with Dr Kung on behalf of the Foundation in the course of three meetings in Hong Kong in early 2009 to advance a loan in the region of HK$40 million with interest at the maximum rate permitted by law to the Foundation. We shall come back to the issue of the rate of interest later in this judgment.

11.  Mr Lam also said that the original agreement with Dr Kung was that the loan and interest thereon were to be repaid by July 2009, but the date of repayment was subsequently extended by mutual agreement such that the loan and interest would be repayable on demand only after the conclusion of the Probate Action.

12.  Between March and June 2009, Mr Lam paid or caused to be paid the total sum of HK$42,850,000 by 9 tranches into the bank account of the Foundation with the China Construction Bank (Asia):

Date	Payor	Amount (HK$)
9 March	Mr Lam	20,000,000
31 March	Draworld Group Ltd	3,000,000
6 April	Winjoin Investments Ltd	2,850,000
24 April	Great Momentum Investments Ltd	1,000,000
27 April	Tang Cheung Gen	2,000,000
30 April	Kan Leung Chow & Lee Chi Fun	500,000
7 May	Great Momentum Investments Ltd	1,800.000
8 May	Great Momentum Investments Ltd	1,700,000
12 June	Chu Ying Man	10,000,000
	Total:	42,850,000

13.  Mr Lam said that, out of the HK$42,850,000 advanced to the Foundation, he personally provided HK$20,000,000, and borrowed the balance in the sum of HK$22,850,000 from his friends or business associates at the monthly interest rate of 3% per annum for a term of 6 months.

14.  In February 2010, the Hon Lam J (as Lam PJ then was) gave a judgment in favour of the Foundation and against Mr Tony Chan in the Probate Action. The subsequent appeals by Mr Tony Chan against Lam J’s judgment were unsuccessful. The dispute between Mr Tony Chan and the Foundation concerning the estate of Mrs Wang came to a final conclusion when the Appeal Committee of the Court of Final Appeal refused to grant Mr Tony Chan leave to appeal on 28 October 2011 (FAMV 20/2011).

15.  In August 2014, Mr Lam through his solicitors formally demanded the Foundation for repayment of the loan and interest thereon. Consequent upon the failure of the Foundation to satisfy the demand, on 13 April 2015, Mr Lam commenced the present action against the Foundation seeking to recover the outstanding loan and interest thereon. An alternative claim based on unjust enrichment was also advanced by Mr Lam against the Foundation in the action.

16.  The Foundation resisted Mr Lam’s action, primarily on the basis that the monies which it received between March and June 2009 as summarized in §12 above were “unconditional donations” from the payors. It was also the Foundation’s case that although Dr Kung once had a casual meeting with Mr Lam through the introduction of Mr Hui in or about 2008 in Shenzhen, “Dr Kung had never indicated and/or discussed the making of any donation or any form of alleged financial assistance to be made by [Mr Lam] to [the Foundation] whether before, during and/or after the said meeting”, that “[n]one of the other Governors of [the Foundation] have ever discussed with [Mr Lam] nor been contacted by him in relation to any alleged loan to be granted or any donation to be made by [Mr Lam] to [the Foundation]”, and the Foundation had “never entered into any kind of loan agreement whatsoever, whether verbal or written, with [Mr Lam]”[4].

THE JUDGMENT

17.  The trial of this action came before the Judge in January 2022. At the trial, Mr Lam and Mr Pang gave evidence on the Plaintiff’s side, while Dr Kung and Mr Chan gave evidence on the Defendant’s side.

18.  On 31 March 2023, the Judge gave the Judgment, finding in favour of Mr Lam against the Foundation. The Judge evaluated the conflicting evidence of the parties and came to the following conclusion on the issue of the Loan Agreement at §64 of the Judgment:

“Testing the oral evidence in line with the principles summarised from the outset, I prefer the evidence adduced on behalf of Lam to that of Dr Kung where they conflict. I find that there was in fact the oral loan agreement between Lam and Dr Kung on behalf of the Foundation whereby loans would be extended and repayable on demand after the conclusion of the Probate Action, and pursuant to that the various sums of money were caused by Lam to be deposited into the Foundation…”

19.  On the issue of interest, the Judge held that the contractual rate of interest should be 48% per annum. We shall come back to the Judge’s reasoning for this holding later when we consider the Foundation’s appeal concerning the issue of interest.

20.  Having reached the above conclusions, the Judge considered that Mr Lam was entitled to recover the amount claimed as a loan and did not have to rely on the alternative cause of action based on unjust enrichment. Nevertheless, the Judge dealt with the unjust enrichment claim briefly, holding that the Foundation’s key contention that it had materially altered its position by acting on the belief that the sums received from Mr Lam were unconditional donations and spending the same on legal costs in the Probate Action should be rejected.

21.  On the basis of the aforesaid findings, the Judge gave judgment for Mr Lam against the Foundation for the sum of HK$42,850,000 with interest at the rate of 48% per annum on the sums accruing from their respective drawdown dates as set out in the table at §12 above until payment.

THE APPEAL AND RESPONDENT’S NOTICE

22.  The Foundation’s Notice of Appeal against the judgment dated 27 April 2023 contains 3 grounds:

(1)  Ground 1 contends that the Judge’s holding that the Foundation should pay interest at 48% per annum is unsustainable as a matter of law;

(2)  Ground 2 contends that any term to the effect that the interest rate should be “the maximum rate as the law permitted” is, as a matter of law, void for uncertainty; and

(3)  Ground 3 contends that the Judge’s finding that the Loan Agreement was proved is plainly wrong, in that he had overlooked various matters referred to at §3(a) to (f) of the Notice of Appeal, and no reasonable judge could have reached such finding in light of those matters.

23.  Mr Lam’s Respondent’s Notice dated 18 May 2023 also contains 3 grounds. In Ms Frances Lok, SC’s Respondent’s Skeleton Argument on Cross-Appeal dated 11 April 2025, Ms Lok confirms that Mr Lam would not pursue Grounds 1 and 2. The remaining Ground 3 argues that if the Loan Agreement is found to be void or unenforceable as contended by the Foundation on appeal, Mr Lam’s unjust enrichment claim should be allowed such that the Foundation shall in any event pay HK$42,850,000 to Mr Lam.

GROUND 3 OF NOTICE OF APPEAL – ORAL AGREEMENT

24.  Ground 3 of the Notice of Appeal, which challenges the Judge’s finding that the Loan Agreement was proved on the evidence before him, logically comes before Grounds 1 and 2, which concern the interest on the loan payable by the Foundation to Mr Lam under the Loan Agreement.

25.  Ground 3 is an appeal against a finding of primary fact by the Judge. The relevant principles for an appeal against a finding of primary fact made by a trial judge are well settled. It is not necessary to repeat them here.

26.  Under this ground, the Foundation argues that the Judge, in finding the Loan Agreement proved, had overlooked the following six matters, and no reasonable judge could have made such finding in light of those matters:

(a)  The inherent unlikelihood for Dr Kung to have deliberately misled the other governors of the Foundation about the nature of the sums received from Mr Lam.

(b)  The inherent improbability of the Loan Agreement being entirely oral when Mr Lam was a money lender, he had parted company with large sums, and he was charging very high interest.

(c)  The paucity or lack of evidence of Mr Lam having, as he alleged, borrowed and repaid HK$14.85 million and HK$8 million (by way of principal) from Mr Tang and Mr Tsang respectively.

(d)  The lack of any reason for the Foundation to obtain a short-term commercial loan at extremely high interest at the material time.

(e)  The lack of any plausible reason why Mr Lam did not take any step to recover the outstanding indebtedness until 4 August 2014.

(f)  Evidence concerning the arrangements between Century Venture Holdings Limited (Mr Lam’s company, “CV”) and Chinachem Financial Services Limited (a subsidiary in the Chinachem Group, “CFS”) which suggested that Mr Lam had credible reasons to make unconditional donations to the Foundation at the material time.

27.  In our view, none of the matters relied upon by the Foundation comes close to satisfying the high threshold required for this Court to intervene in a finding of primary fact made by the Judge in the present case.

28.  In respect of (a), Mr Bernard Man, SC (for the Foundation) argues that the Judge did not appear to have taken into account or considered in any way why Dr Kung had any need to misrepresent the position about the nature of the sums received from Mr Lam to the other governors of the Foundation, and his lack of any financial or personal interest in the matter which would have justified taking such a drastic step with serious consequences. He argues that the Foundation’s financial statements were publicly available documents, and as Dr Kung must have known given his involvement in the Probate Action, the Secretary for Justice oversaw the Foundation given its role as parens patriae. It would have been inherently improbable for Dr Kung to have deliberately lied to Mr Chan and others at the material time, and that would have pointed to the unlikelihood of Mr Lam’s case theory as a whole.

29.  In our view, the suggestion that Dr Kung did not have any financial or personal interest in the matter is unrealistic. What was at stake was the vast fortune comprised in Mrs Wang’s estate. As found by the Judge, the stance of the Foundation, under the control of the Kung family members (amongst whom Dr Kung was very much in the driver’s seat), was that it was the beneficial owner of the estate of Mrs Wang, and it was the understanding of the parties that success in the Probate Action would put the Kung siblings in control of the Foundation and the Chinachem Group[5]. It does not, of course, follow from the fact Dr Kung had a substantial financial or personal interest in the matter that he would have lied or misled the other governors of the Foundation about the true nature of the monies received from Mr Lam. It will be recalled that at the material time, the Foundation was under the control of the Kung family members (comprising Dr Kung and his two younger sisters), and Mr Hui was the chief executive officer of the Chinachem Group. On Mr Lam’s evidence, which the Judge accepted, both Dr Kung and Mr Hui would be fully aware of the true nature of the monies that the Foundation received from Mr Lam. The issue of why Dr Kung would find it necessary to conceal from the other governors of the Foundation, or some of them, about the true nature of the monies that the Foundation received from Mr Lam was never fully gone into at the trial. Nevertheless, there is no complaint about the principles that the Judge adopted in respect of assessment of the credibility of the witnesses (as set out at §22 of the Judgment), and it is clear that the Judge had carefully evaluated the evidence adduced by the parties before coming to the conclusion that Mr Lam’s evidence was to be preferred, and finding that “there was in fact the oral loan agreement between Lam and Dr Kung on behalf of the Foundation whereby loans would be extended and repayable on demand after the conclusion of the Probate Action”. The Judge did not make any palpable error in coming to that finding, and it was a finding which was open to the Judge to make on the evidence before him. We are not satisfied that the alleged inherent improbability relied upon by Mr Man is sufficient for this Court to intervene in this finding of primary fact by the Judge.

30.  In respect of (b) and (e), the Judge was plainly aware of the matters relied upon by the Defendant:

(1)  At §40 of the Judgment, the Judge expressly alluded to the point that while one would probably expect that an agreement for a loan of the amount in question (over HK$42.8 million) would be in writing, it was not. At §43 of the Judgment, the Judge referred to Mr Lam’s explanation as to why the Loan Agreement did not take any form of writing.

(2)  The Judge was also very much alive to the time that it took Mr Lam to take action against the Foundation to recover the loan and interest thereon. As mentioned by the Judge at §§12-16 of the Judgment: (i) after the conclusion of the Probate Action in October 2011 (when Mr Tony Chan’s application for leave to appeal was refused by the Court of Final Appeal), Mr Lam orally requested Dr Kung many times for repayment of the loan, but was told that other litigations concerning Mrs Wang’s will were still on-going, and therefore he would have to wait until the conclusion of those litigations, (ii) the Hon Poon J (as Poon CJHC then was)’s judgment in the litigation between the Secretary for Justice and the Foundation concerning the true construction of the will was only given in February 2013 (HCMP 853/2012), and that litigation only came to a final conclusion in the Court of Final Appeal in May 2015 (FACV 9/2014), and (iii) in the meantime, Mr Lam served a statutory demand on the Foundation in August 2014, and commenced the present action in April 2015.

It was for the Judge to assess the evidence mentioned above. We can see no proper basis for the Foundation’s contention that the Judge had overlooked the above matters. Neither do we accept the Foundation’s contention that no reasonable judge could have reached the Judge’s finding concerning the Loan Agreement in light of those matters.

31.  In respect of (c), it was Mr Lam’s evidence that he borrowed (and later repaid) HK$14.85 million and HK$8 million from Mr Tang and Mr Tsang, and those sums were then advanced to the Foundation[6]. The contention that there was a lack of relevant evidence cannot get off the ground, while the contention that there was a paucity of evidence does not assist the Defendant, since assessment of the evidence is primarily a matter for the Judge. The Judge was entitled to accept Mr Lam’s evidence, and we can see no basis for this Court to disturb the Judge’s assessment of the evidence.

32.  In respect of (d), it is necessary to take into account the Judge’s finding that the Foundation could not look to the Chinachem Group to fund the litigation against Mr Tony Chan, because the estate of Mrs Wang had been put under the control of the administrators pendente lite since 2007 (and there was no request to the Secretary for Justice or the administrators pendente lite for litigation funding), while institutional borrowing was not feasible in the absence of fixed assets or substantial income-producing business of the Foundation[7]. The Judge also referred to the fact that both Dr Kung and Mr Chan accepted that in view of the Foundation’s account and effectively insolvency state as well as lack of assets for security, there was no real prospect of the Foundation securing a loan of the amount obtained from Mr Lam at normal or low interest rate[8]. In reality, the Foundation was in a situation of urgent need for funding, but had no obvious means of raising funds from ordinary commercial sources in early 2009[9]. Viewed in light of the prevailing circumstances in which the Foundation found itself, we are unable to accept the suggestion that there lacked any reason for the Foundation to obtain a short-term commercial loan at extremely high interest at that time.

33.  Lastly, in respect of (f), the arrangements between CV and CFS relied upon by the Foundation related to a completely different and separate transaction from the Loan Agreement. The suggestion that Mr Lam had made a donation of HK$20 million to the Foundation in order to “curry favour” with the Chinachem Group (in the context of CFS awarding an entrustment agreement to CV in August 2009 for the latter to provide “services” in relation to a litigation in the Mainland) was apparently only raised for the first time in the course of the cross-examination of Mr Lam at the trial, and that suggestion was strongly denied by Mr Lam[10]. That matter was considered by the Judge expressly at §§60-61 of the Judgment. He did not make any positive finding that Mr Lam had indeed made a donation of HK$20 million to the Foundation as alleged, and took the view that the suggestion “cuts both ways”, because “[s]imilar alleged mentality on the part of Lam could well explain his readiness to provide the funding desperately needed by the Foundation for the Probate Action. Only that the operation of such alleged mentality still did not have to take the form of donation. As Lam admitted, one of the reasons he was willing to engage himself in the matter was the business prospect which might arise as a result of his assistance. Only that he did not do so by way of donation.” That was a view open to the Judge to take.

34.  For the above reasons, Ground 3 of the Notice of Appeal is rejected.

GROUND 1 OF NOTICE OF APPEAL – INTEREST RATE

35.  Under Ground 1, Mr Man contends that the Judge’s holding that the Foundation should pay interest on the loan at 48% per annum is unsustainable as a matter of law. Mr Man refers to and relies on Mr Lam’s pleaded case that there was a specific agreement that the loan would carry interest at 60% per annum, and the Judge’s finding that the parties did not reach any agreement that the applicable interest rate would be 60% per annum, and yet the Judge, by reference to an understanding of the parties based on a “representation” (made by Mr Hui) as to the maximum permissible interest rate, held that the parties would not have contemplated any rate exceeding 48% per annum and somehow found that 48% per annum was the applicable interest rate. Mr Man argues that this finding is wrong and impermissible for the following reasons:

(1)  There was no finding by the Judge that 48% per annum was the maximum interest rate allowed by law, or the parties had so agreed. Neither was there any finding that the parties had reached agreement on any term that interest should be at “the maximum rate as the law permitted”.

(2)  Mr Lam never pleaded a case either that (i) he and Dr Kung had agreed to the interest rate of 48% per annum, or (ii) he and Dr Kung were even aware or had agreed that the maximum interest rate permitted by law applied and that such rate was 48% per annum.

(3)  Even if there was a finding that the parties shared some understanding that interest would be chargeable at “the maximum rate as the law permitted”, that does not translate, and could not have translated, to any finding of 48% per annum.

(a)  The statutory scheme of control

36.  For the purpose of evaluating the validity of Mr Man’s arguments, we shall first discuss the statutory scheme of control over the rate of interest which a lender may charge a borrower under Part IV of the Money Lenders Ordinance, Cap 163 (“the MLO”). As at the time when the parties entered into the Loan Agreement, viz early 2009, ss 24 and 25 of the MLO stated, relevantly, as follows:

“Part IV

Excessive Interest Rates

24. 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[11] 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).

…

(4) Any person who commits an offence under this section shall be liable [to certain prescribed penalties].

…

25. 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[12] 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.”

37.  The effect of the above provisions (as applicable in 2009) may be summarized as follows:

(1)  The legally maximum permissible “effective rate” of interest on any loan is 60% per annum. For the purpose of this judgment, it is not necessary to get into the complications concerning the definition of “effective rate” in s 2(1) of the MLO, and the interest rate as agreed by the parties may be treated as equivalent to the effective rate of interest.

(2)  Where the agreed interest rate exceeds 60% per annum, the loan agreement (including the agreement for the payment of interest) is legally unenforceable, and the person who lends or offers to lend money at an interest rate exceeding 60% per annum commits a criminal offence.

(3)  Where the agreed interest rate exceeds 48% per annum but not 60% per annum, the relevant loan agreement is “presumed” to be an extortionate transaction.

(4)  Such presumption is rebuttable, and the court may find that the agreement is not extortionate if, having regard to all the circumstances relating to the agreement, it is satisfied that the agreed interest rate (exceeding 48% but not 60% per annum) is not unreasonable or unfair having regard to the provisions in s 25(4), (5) and (6) of the MLO.

(5)  Even where a loan agreement is held to be extortionate (whether by the operation of the presumption under s 25(3), or because it falls under s 25(2)), the loan agreement is not necessarily or absolutely unenforceable because (i) the court may, in the exercise of its discretion, decide not to reopen the transaction under s 25(1), and (ii) even if the court decides to reopen the transaction, it has wide powers 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.

38.  In short:

(1)  The maximum interest rate on any loan agreement permissible under Hong Kong law is 60% per annum. Any rate which exceeds 60%, even by a small margin, would render the loan transaction unenforceable, and the lender liable to criminal prosecution.

(2)  The rate of 48% per annum is not the maximum permissible interest rate under Hong Kong law. It is only the threshold rate above which the statutory presumption of an extortionate transaction is triggered. Even where the agreed interest rate exceeds 48% per annum, the relevant loan agreement may still be enforceable according to its terms, or in a modified manner, depending on the circumstances of the case.

(b)  The Judge’s finding that interest on the loan should be at 48% per annum is unsustainable

39.  Coming back to the present case, the final form of Mr Lam’s pleaded case on the issue of interest, after a couple of rounds of amendments, is as follows[13]:

“By the end of three meetings pleaded above, the Plaintiff reached an oral agreement with Dr. Kung on behalf of the Defendant (‘the Loan Agreement’) whereby:

(1) the Plaintiff agreed to lend and the Defendant agreed to borrow a sum of about HK$40 million with maximum interest permissible by the laws of Hong Kong (which was expressly agreed by the parties to mean 60% per annum)”.

40.  By this plea, Mr Lam alleges that the parties reached an express oral agreement on 2 points: (i) the interest rate should be the maximum interest permissible under Hong Kong laws, and (ii) such maximum interest was 60% per annum.

41.  This plea was supported by the evidence of Mr Lam, who said that the following discussion took place at the first meeting between him and Dr Kung (with Mr Pang, Mr Hui and Mr Tsui also being present) at The China Club in January or February 2009[14]:

“當時，徐先生再次表示希望我和彭先生可以提供大約港幣40,000,000至50,000,000元的借貸…。我於是問他被告會繳付多少利息，徐先生回答我説法定最高利息。許先生就指出以他曾任新鴻基金融集團的行政總裁所知，香港的法定最高年利率為60%。龔醫生繼而説利息無論多高也會接受，也就是說被告同意繳付60%年利率的利息。”

42.  Mr Pang’s recollection of the conversation at that meeting on the issue of interest was somewhat different, but the effect was the same, namely, it was mentioned that the highest permissible interest rate under Hong Kong law was 60% per annum, and Dr Kung was willing or agreeable to pay interest on the proposed loan at the legally highest interest rate[15]:

“其後華懋基金與林生關於借貸的洽商，如果是徐生、林生、龔醫生和許業榮都在場的會談，我比較清楚記得出席過的起碼一次。地點在中國會，時間是2009年初，當日討論重點是貸款金額、利率和還款期。華懋基金一方提出需要林生盡快借出港幣四、五千萬 (最少四千萬)。林生問息口可以去到多少，許生指香港法定最高還款年利率是百分之六十，不過息口太高可能會有問題。討論中，林生曾提及如果百分之六十年利率不行，百分之四十八年利率是否就無問題，龔醫生回應說只要林生及時籌足借款，法定最高還款年利率是可以的，不過華懋基金要等爭產官司告一段落之後才可以還款，林生說理解。徐生提及未必要這麼久，因為他會回國內繼續幫華懋基金籌錢，國內渠道多，大約半年後可知成果。”

43.  Although the Judge accepted Mr Lam’s evidence concerning the existence of the oral agreement, he found that the contractual interest rate should be 48% per annum instead of 60% per annum. The Judge set out his reasoning for this conclusion at §§77 and 78 of the Judgment:

“[77] That said, what appeals to me as a matter of evidence is that, as Lam confessed in his evidence, the understanding as to the interest rate was no more concrete than the representation that it should be the maximum rate as the law permitted. It was never registered on his mind in terms of a specific rate. That, as mentioned in his evidence, also explained why he left it to his legal representatives to plead the rate for the purpose of this action. On this basis, I doubt if the parties’ understanding, even in terms of the maximum rate permitted by the law, had to be that it was 60% per annum.

[78] I am not convinced that what the parties at the time of the loan agreement would contemplate and refer to as the maximum interest rate allowed by the law would go so far as having had to factor in the operation of the presumption of extortionate rate (ie in excess of [48%] per annum) being displaced in order to sustain and apply. I find it hard to accept that they contemplated as their starting point any rate which would exceed the rate which would start calling into question of its enforceability under the law. On this basis, it would not be any rate exceeding 48% per annum. 48% per annum may still be high, but the circumstances discussed above remain relevant, albeit not for the purpose of considering the question of re-opening the loan as a presumed extortionate one.”

44.  We have difficulty with this reasoning. It would appear from the above passages that the Judge accepted that there was a representation made to Mr Lam, and it was his understanding based on such representation, that the loan would carry interest at the maximum rate as permitted by law, but did not accept that Mr Lam had a specific, numerical rate, in mind, or the parties had come to a specific agreement that the interest rate would be 60% per annum. Whilst it was, in principle, open to the Judge to accept only a part of the witnesses’ evidence, we are unable to see how it could be concluded that the parties had agreed that the interest rate would be 48% per annum. There was no finding that Mr Lam and Dr Kung understood or agreed that 48% per annum was the maximum interest rate permitted by law, or that 48% per annum was, as a matter of law, the legally permissible maximum interest rate (which would be an incorrect view). There was, we consider, no or no sufficient evidential foundation for the Judge’s finding that 48% per annum was the agreed interest rate.

45.  In respect of Mr Man’s arguments at §35 above that the Judge’s finding is wrong and impermissible, our views are as follows:

(1)  §35(1) - we accept that there was no finding by the Judge that 48% per annum was the maximum interest rate allowed by law. Indeed, any such finding would be incorrect as a matter of law. On the other hand, reading the Judgment fairly and as a whole, we consider it clear that the Judge did make a finding that the parties had reached agreement that interest should be at “the maximum rate as the law permitted”[16].

(2)  §35(2) - it was not Mr Lam’s pleading, in its final form, that (i) he and Dr Kung had agreed to an interest rate of 48% per annum, or (ii) he and Dr Kung understood that the maximum interest rate permitted by law was 48% per annum, or had agreed that the maximum interest rate permitted by law was 48% per annum.

(3)  §35(3) - as mentioned above, we do not consider that the Judge’s finding that the contractual interest rate was 48% per annum could withstand analysis.

46.  Overall, we consider the Judge’s conclusion that the parties had agreed that the interest rate on the loan was 48% per annum to be unsustainable.

GROUND 2 OF NOTICE OF APPEAL – CERTAINTY OF AGREEMENT

47.  Under this ground, the Foundation contends that any term to the effect that the interest rate should be “the maximum rate as the law permitted” is void for uncertainty.

48.  This ground can be disposed of briefly. There is no requirement that an agreement on interest rate must refer to or stipulate a definite numerical rate. The maximum interest rate as permitted by law was readily ascertainable, and translated to 60% per annum as at the time when the parties reached agreement in early 2009. We fail to see why a term of an agreement to the effect that a loan should carry interest at “the maximum rate as the law permitted” is void for uncertainty.

49.  Mr Man argues that such a term is void for uncertainty, because there could be a range of interest rates which would still have been susceptible to the court’s intervention and thereby being technically impermissible, eg (i) an interest rate between 48% and 60% per annum would have triggered the extortionate transaction presumption such that prima facie the court could reopen transaction, (ii) even where the interest rate falls below 48% per annum, the transaction may, depending on the circumstances, still be held to be extortionate so as to engage the court’s jurisdiction under s 25(1) of the MLO. As such, says Mr Man, what the “maximum rate as the law permitted” depends on the precise circumstances of each case, and such purported term in and of itself is too uncertain to be given effect.

50.  We do not accept Mr Man’s argument. In either of the situations postulated by Mr Man, although the relevant loan agreement may eventually be held to be wholly or partially unenforceable (or, to use Mr Man’s terminology, technically “impermissible”), that would not be because the interest rate charged exceeds the maximum permissible rate by law, but because the agreement is ruled or presumed to be extortionate in view of, amongst other matters, the interest charged, and the court decides, in the exercise of its discretion, that it should be reopened in order to do justice between the parties having regard to all relevant circumstances. The ground for the vitiation of the loan agreement is not because the interest charged exceeds the maximum rate permitted by law. The interest charged may be one of the factors leading to the vitiation of the loan agreement, but it is not the only relevant factor. In short, the fact that there could be a range of rates of interest on a loan which would have been susceptible to the court’s intervention does not mean, and cannot lead to the conclusion, that an agreement that interest on a loan is at “the maximum rate as the law permitted” is uncertain.

FURTHER ISSUES ARISING FROM THE FINDING OF AN AGREEMENT THAT INTEREST SHOULD BE AT THE MAXIMUM RATE AS THE LAW PERMITTED

51.  Although we have come to the conclusion that the Judge’s finding that the parties had agreed that the interest rate on the loan was 48% per annum is unsustainable, it does not follow that Mr Lam’s claim for interest should be rejected totally without any further consideration.

52.  As earlier mentioned, we consider it to be clear, upon reading the Judgment fairly and as a whole, that the Judge did find, as a fact, that the parties had agreed that interest on the loan would be at the maximum rate as permitted by law (but without any specific agreement or understanding as to a numerical figure). On the basis of such a finding, the Judge ought to have gone on to consider the question of what the maximum rate as permitted by law was, and concluded that it was 60% per annum (for the reasons set out at §§37-38 above), and that rate represented the contractual rate of interest in the present case.

53.  Ms Lok and Mr Man differ on whether it is open to the court to find that the contractual rate of interest in the present case was 60% per annum in this manner. Ms Lok submits that this finding can properly be made by the court as a matter of construction of contract, because the court can conduct a construction exercise without being bound by the parties’ pleadings, concessions or arguments, provided that the court does not move outside the evidence[17].

54.  On the other hand, Mr Man argues that it is not permissible for the court to find that the contractual rate of interest in the present case was 60% per annum as a matter of construction, because:

(1)  the postulated construction is not pleaded;

(2)  there is no finding of the actual words used by the parties, which can then be construed; and

(3)  the proposed construction is prevented by the Judge’s own finding.

55.  In respect of the pleading objection referred to at §54(1) above, Mr Man argues that there is a difference between (i) a plea of an agreed express term of “maximum interest permissible” simpliciter, and (ii) a plea of “maximum interest permissible … expressly agreed … to mean 60% per annum”. The latter plea means that there is no place for any responsive pleas and/or requests for particulars as to (i) what the maximum interest rate should be as a matter of law (including what would be the maximum rate allowed under s 25 of the MLO in the particular circumstances of the case), and (ii) what the maximum interest rate should be in light of the factual matrix as contended by Mr Lam (in particular whether the parties had in mind ss 24 or 25 of the MLO), as illustrated by the fact that the foundation of the contention for 60% was Mr Lam’s evidence, viz that he agreed 60% per annum with Dr Kung on the basis of Mr Hui’s input on the figure, and there was never any alternative case advanced or pleaded by Mr Lam that the interest should be 60% anyway, even if that figure was not mentioned. He argues that had such a case been advanced or pleaded, the Foundation could and would have marshalled further pleas and evidence, including, inter alia, (i) the fact that the concept of “maximum rate permissible by law” is too uncertain as a matter of law because any rate below 60% could be declared extortionate and rendered invalid under s 25 of the MLO, (ii) what, on Mr Lam’s factual case, the parties in fact understood about the effect of ss 24 and 25 of the MLO, and (iii) what the maximum permissible rate under s 25 of the MLO should be in the circumstances of this case. Mr Man further argues that because Mr Lee pleaded the figure of 60% per annum, the attention at the trial concerning interest rate was focused on whether any specific agreement on this term was ever reached, and any investigation into what “maximum interest permissible” means at law (or could have meant to the parties if there was no agreement on a number) was never actually bottomed out.

56.  We do not accept Mr Man’s pleading objection. As stated above, Mr Lam’s pleaded case on the issue of interest was:

“By the end of three meetings pleaded above, the Plaintiff reached an oral agreement with Dr. Kung on behalf of the Defendant (‘the Loan Agreement’) whereby:

(1) the Plaintiff agreed to lend and the Defendant agreed to borrow a sum of about HK$40 million with maximum interest permissible by the laws of Hong Kong (which was expressly agreed by the parties to mean 60% per annum)”.

57.  By this plea, Mr Lam is saying that he and Dr Kung reached oral agreement on two points: (i) the loan would carry the maximum interest permissible by the laws of Hong Kong, and (ii) the maximum interest permissible by the laws of Hong Kong meant 60% per annum. In the Judgment, the Judge accepted that the parties had reached an oral agreement that the loan would carry the maximum interest permissible by the laws of Hong Kong, but did not accept that the parties had further agreed that the maximum interest permissible by the laws of Hong Kong meant 60% per annum. We consider that it was open to the Judge to make a positive finding on point (i) only, even though the two points were related. The Judge’s finding on point (i) cannot be said to be a finding based on an “unpleaded” case. Nor was it a finding based on an “alternative” case.

58.  An agreement that interest would be the maximum permissible by the laws of Hong Kong means, objectively speaking, that the interest rate is 60% per annum. This is the effect of the agreement, objectively ascertained, whatever may be the parties’ subjective knowledge or understanding (if any) of ss 24 and 25 of the MLO. The fact that a rate lower than 60% per annum could be held to be extortionate and be invalidated under s 25 of the MLO does not alter the fact that 60% is the maximum rate permissible by Hong Kong law.

59.  Insofar as it is suggested that the Foundation has been prejudiced by the state of Mr Lam’s pleading in this case, it is necessary to have regard to the fact that the Foundation’s case is that there was simply no meeting and no agreement whatsoever between Mr Lam and Dr Kung (on behalf of the Foundation) on any loan or interest. We do not see that the further “pleas or evidence” that Mr Man says the Foundation could and would have marshalled (such as what the parties in fact understood about the effect of ss 24 and 25 of the MLO, or what the (alleged) maximum permissible rate under s 25 of the MLO should be in the circumstances of this case) are relevant or helpful inquiries. Further, for reasons already explained in our discussion under Ground 2, we do not accept that the concept of “maximum rate permissible by law” is too uncertain as a matter of law.

60.  In respect of the objection that there is no finding of the actual words used by the parties which can then be construed (referred to at §54(2) above), Mr Man argues that when the court is construing a written document, the precise words to be construed is not subject to dispute, and the court would seek to ascertain the true meaning of a given set of words by applying the usual principles of construction. This is to be contrasted with the present situation where the Judge has not found the precise words used in an oral agreement, and had (at most) only found what he believed to be the effect of what the parties had agreed, or what he thought was the likely understanding of the parties at the time. That, says Mr Man, must at least be a finding of mixed fact and law which the Court of Appeal should not substitute its own conclusion for the Judge.

61.  We are unable to accept this objection. As mentioned above, we consider that it follows, from the fact (as found by the Judge) that the parties had agreed that the interest would be at the maximum rate as the law permitted, that the rate would be 60% per annum. This conclusion does not engage any particular process of construction, or entail a consideration of the precise words used by the parties which constituted the agreement in question. It builds on the Judge’s finding of fact that the parties had agreed that interest would be the maximum as permitted by law, and reaches the logical conclusion of that finding.

62.  Lastly, in respect of the objection that the proposed construction is prevented by the Judge’s own finding (referred to at §54(3) above), Mr Man argues that the substitution of a conclusion of mixed fact and law is all the more inappropriate when the proposed conclusion is the very opposite of the Judge’s, and one which the Judge has expressly rejected as the true understanding of the parties. He refers to §77 of the Judgment, where the Judge expressed a doubt that “the parties’ understanding, even in terms of the maximum rate permitted by the law, had to be that it was 60% per annum”, and §78 of the Judgment, where the Judge found that the interest rate “would not be any rate exceeding 48% per annum”, and argues it is clear that the Judge had found that the parties’ understanding, as a matter of mixed fact and law, could not be a rate of 60% per annum, and there is no cause for reversing that finding and coming to precisely the opposite conclusion.

63.  We do not accept the validity of this objection. We do not see the Judge’s finding that the parties’ understanding on the issue of interest was not a rate of 60% per annum to be a finding of “mixed fact and law”. The finding that there was a representation made to Mr Lam, and it was Mr Lam’s understanding based on such representation, that interest would be charged at the maximum rate as the law permitted was a finding of fact, while Judge’s doubt that “the parties’ understanding, even in terms of the maximum rate permitted by the law, had to be that it was 60% per annum” was not any finding of mixed fact and law, but was an inference based two other findings of fact, namely, (i) “[i]t was never registered on [Mr Lam’s] mind in terms of a specific rate”, and (ii) “[Mr Lam] left it to his legal representatives to plead the rate for the purpose of this action”[18]. What the Judge failed, it seems to us, was to follow through with his finding that the parties’ agreement was that the interest rate would be the maximum rate as the law permitted, and come to the logical conclusion that such rate would be 60% per annum. Insofar as any reliance is sought to be placed on the Judge’s conclusion that the contractual interest rate “would not be any rate exceeding 48% per annum”, we do not see that there was any or any sufficient evidential foundation for this finding. We see no reason why this Court should not, or could not, reach the conclusion that the contractual rate of interest was 60% per annum if this is the reasonable conclusion properly to be reached on the basis of the Judge’s finding of fact that the parties’ agreement was that the interest rate would be the maximum rate as the law permitted, and such finding has not been disturbed.

64.  On the basis that the correct conclusion to be reached in the present case is that the contractual rate of interest is 60% per annum, the statutory presumption of an extortionate transaction under s 25(3) of the MLO is triggered because the contractual rate is higher than the threshold rate of 48% per annum. Four further issues arise:

(1)  whether the statutory presumption under s 25(3) can be rebutted on the facts of this case;

(2)  if the answer to issue (1) is “no”, whether the Loan Agreement ought to be reopened under s 25(1);

(3)  if the answer to issue (2) is “yes”, what orders and directions should be made or given in respect of the terms of the Loan Agreement or the rights of the parties thereunder; and

(4)  depending on the court’s findings in respect of issues (1), (2) and (3) above, whether Mr Lam may recover the principal amount of the loan (HK$42,850,000) based on the principle of unjust enrichment.

65.  These issues were not dealt with, or fully dealt with, by the Judge, and should be remitted to the Judge for fresh determination. Ms Lok submits that a remission is not necessary because, amongst other matters, the issue of whether an interest rate of 48% per annum (as found by the Judge to be the agreed interest rate) was extortionate or unfair in the circumstances had already been considered by the Judge at §68-76 of the Judgment, and he found that it was not. We do not accept this submission. Although the Judge did allude to the issue of extortion and unfairness of the terms of the loan[19], as rightly pointed out by Mr Man, the relevant discussion was not in the context of a finding that the contractual rate of interest was 60% per annum. Ms Lok also submits that if a remission is ordered, the following questions should be determined (i) whether the loan transaction with interest at 60% per annum was extortionate, and (ii) if the loan is reopened, what would be the interest rate that would do justice between the parties. While we can see considerable force in the argument that the principal amount of the loan should not be re-opened in any event in view of the Judge’s analysis at §§74-76 of the Judgment, strictly speaking, the court, if it decides to re-open a loan transaction under s 25(1) of the MLO, has wide powers to make orders and give directions in respect of the terms of the transaction in order to do justice between the parties. In our view, this Court should not unduly restrict the Judge’s exercise of discretion under s 25(1), and all four issues mentioned at §64 above ought to be remitted to the Judge for fresh determination.

THE RESPONDENT’S NOTICE

66.  In view of the conclusions reached above, the issue of unjust enrichment under §3 of the Respondent’s Notice ought to be remitted to the Judge for fresh consideration (if necessary) together with the other issues identified above.

DISPOSITION

67.  The Defendant’s appeal is allowed to the extent as indicated in this judgment, and the judgment dated 31 March 2023 is set aside. The further issues identified at §64 above are remitted to the Judge for fresh determination. We shall leave it to the parties to seek such directions as may be necessary from the Judge for a proper resolution of those issues.

68.  In relation to the question of the costs of the proceedings below, there were 2 main issues at the trial, namely, (i) whether the payments made by Mr Lam were pursuant to an oral loan agreement or were unconditional donations, and (ii) the issue of interest. The Judge found in favour of Mr Lam on the former issue and that finding has not been disturbed on appeal. In respect of the latter issue, as mentioned above, further issues arise which require the Judge’s fresh determination. There were also a number of other issues which the Judge dealt with relatively briefly, including Dr Kung’s authority to enter into the Loan Agreement on behalf of the Foundation, limitation and unjust enrichment. By and large, the Judge found in favour of Mr Lam against the Foundation on those issues. Overall, we consider that the fair order to make is that Mr Lam should have 60% of the costs of the proceedings below, while the remaining 40% of the costs should be in the cause of the remission.

69.  Insofar as the costs of the appeal are concerned, the Foundation has succeeded on Ground 1, but failed on Grounds 2 and 3. We consider that the fair order to make would be no order as to the costs of the appeal.

70.  Accordingly, we make the costs orders mentioned at §§68-69 above on a nisi basis, which shall become absolute unless an application is made to vary the same within 14 days from the date of this judgment.